Guy Carpenter’s Nash tells Baden-Baden Reinsurance Symposium “we are living in the age of intangibles”

“Technologies are already radically transforming the characteristics of risk assumed by the re/insurance market,” said James Nash, chief executive officer, international at Guy Carpenter, adding: “We are now living in the age of intangibles.”

Nash told delegates at the Baden-Baden Reinsurance Symposium held by Guy Carpenter, that today “around 90 percent of the S&P 500’s market cap is intangible assets” whether that is data, intellectual property or brand and reputation. This is a huge increase from just 17 percent in 1975.

Nash told the audience that the massive shift presents an exciting opportunity for re/insurance companies, “particularly for those that are bold and those that have the ability to invest”.

He highlighted cyber as an example of how the risk transfer sector has responded to this trend, adding: “It provides a tantalising glimpse into the growth potential on offer as new risk pools emerge through this period of technological change.”
He emphasised the potential that innovations such as robotics, artificial intelligence, and ubiquitous sensors from the internet of things have to change underwriting and what the industry actually underwrites.

“Everything will be measured all the time, meaning that underwriters will, in theory at least, have access to real-time data for all lines of business,” he said.

Nash invited delegates to imagine a world where network sensors embedded in billions of products, devices or services can report risk information to underwriters in real time.

This would mean, he said, that risk uncertainties, and by extension associated loss costs, will decline.

Going further, he said: “Over time a greater level of underwriting insights could even reinvent insurance by shifting this value proposition, from just protection to the prevention of risk.

“We are starting to see that phenomenon in certain sectors of the industry, particularly in cyber.”

He said that the fourth digital revolution and the technological advances it is bringing present a unique opportunity for the risk transfer sector to develop new products, optimise underwriting and gain operational efficiencies.

“This will, very importantly, benefit the end customer,” he said.

Turning to today’s market, Nash said the sector’s transition is clear. The primary market is firming because carriers respond to other performance across multiple lines of business.

According to data released by Marsh, global commercial insurance pricing was up by 6 percent across all lines of business globally in the second quarter of 2019. This represents the seventh consecutive quarter of price increases and the largest increase since Marsh’s Global Insurance Market Index survey started in 2012.

Looking at reinsurance, Nash said capital inflows into the sector have declined this year as loss experiences have deteriorated.

“The reinsurance sector has been operating in an environment of plentiful capacity and abundant capital for several years now, with total reinsurance capital increasing by close to $110 billion, or one third, between the period from 2012 to the first six months of 2019.

“In part, the entry of tens of billions of dollars of alternative capital into the sector has been one driver behind these trends. Convergence capital grew rapidly during this time with an average annual rate of 18 percent on the back of attractive spreads, relatively benign losses and low correlations with other asset classes.”

But, he said, this growth slowed in 2018 and it remains to be seen what the losses in Japan in 2019 will do to alternative capital as the industry heads towards the 2020 renewal.

Nash said re/insurers had entered “a new era” with alternative capital access to the market effectively becoming “alternative capital 2.0”, as investors weigh up and digest the effects of loss creep, attritional perils and evolving credit spreads, and concerns around climate change and model credibility will mean more cautious asset allocation strategies.

“Nevertheless, while short-term market disruption from recent events is inevitable, most notably in the retro space, the concept of insurance risk as an asset class remains viable and strong.
“Access to the market will invariably change and evolve over time, however,” he concluded.