Re/insurers’ capital supply will struggle to meet climate demands: Goldman Sachs

Analysts at Goldman Sachs have warned that the current supply of capital in the property insurance and reinsurance markets will likely struggle to meet the increased demand for coverage that is likely to develop as climate change drive catastrophe losses ever higher.

Referencing Swiss Re data, Goldman Sachs notes that rising catastrophe losses could translate into $149bn to $183bn of new global property premiums by 2040.

Coupled with economic development, its analysts pointed out that this would triple the addressable market for property insurers and particularly the reinsurers.

In turn, the increase in demand would not only drive the top line of reinsurers over the next 20 years, but in the view of Goldman Sachs would also drive pricing higher too with the current supply likely insufficient.

Furthermore, the firm believes that underlying economic growth and urbanisation should also drive demand, meaning climate change is likely to offer a material tailwind to property insurance demand.

Analysts acknowledged that there has been some uncertainty about whether reinsurers have been appropriately pricing in the increased cost of weather losses due to climate change, or whether the companies are basing pricing on historical trends and not on the likely future trends.

However, based on the outcomes of the January renewals, which saw a reduction in capacity and an acceleration of rate, it believes that reinsurers are most probably now pricing more appropriately for climate trends.

“In our view, the reinsurers have a critical role to play in both softening the economic costs associated with climate change-related events and in pricing risks and externalities associated with climate change (which indirectly) are beneficial to the environment as these create real economy financial incentives to address climate change,” Goldman Sachs wrote.

Critically, analysts note that the ability of insurers and reinsurers to adjust their pricing every 12 months means they should be able to continue responding to climate-induced weather losses as they arise.

Source: Reinsurance News,

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