MS Re grapples with climate ‘grey swan’

As global temperatures continue to rise, MS Re is taking a fresh look at its underwriting strategies. Jorg Bruniecki, chief underwriting officer, noted the evolving role of environmental changes in shaping its approach. 

“We have to move beyond experience-based pricing and start integrating exposure-based and scenario-based assumptions,” he said.

Bruniecki pointed out the unexpected losses caused by environmental initiatives. 

“In Italy, for example, hailstorms have been around for a long time, but recently the losses have escalated. An incentive scheme by the government encouraged people to install solar panels and improve insulation on their homes. 

“While that’s great for sustainability, it has created unexpected vulnerabilities. When hailstones hit a well-insulated wall or solar panel, the damage is much more significant,” he explained.

This combination of natural events and infrastructure upgrades has led to more frequent and costly claims. 

“Instead of just replacing a roof, you’re replacing solar panels too. This accumulates losses faster and higher than we might have expected,” he said.

On the technology front, MS Re has been applying lessons learned from other risk sectors. 

Bruniecki shared an interesting crossover. “We’ve used technology originally designed for terrorist modelling, where blast zones are built around a central point. We adapted this for hailstorms, using concentric circles to see the impact radius and potential accumulations within a client’s portfolio,” he said. 

He emphasised how technology has helped assess risk. “We can now take a view on what hail could do to a portfolio, and while we may not always get the return period exactly right, we know the price for this risk isn’t zero. 

“There has to be a middle ground, and that’s where we are focusing,” he said. 

Inflation and AI

Discussing inflation and its impact on the EMEA region, Bruniecki was optimistic about the future. “Inflation is coming back to more normal levels in the EU. Central banks have reacted by dropping interest rates, so we’re past the most painful point. The key challenge is understanding the effects of inflation on different portfolios,” he explained. 

He provided a specific example. “In Turkey, for instance, inflation is driven by economic policies, not just loss inflation. Despite the high inflation rates, loss inflation in the country was relatively controlled because Turkey produces a lot of the materials and spare parts it uses,” he explained.

“AI can help you only if the data is centralised and transparent.”

Bruniecki highlighted concerns about wage inflation. “The next wave of inflation could be driven by wage increases, especially in the casualty space. If wages go up, we’ll see this reflected in healthcare costs and legal fees, and we need to anticipate and price for that.”

On the subject of artificial intelligence (AI), Bruniecki was pragmatic. “We’ve invested a high two-digit million amount into revamping our systems, building a data lake and a state-of-the-art administration platform. But AI can help you only if your data is centralised and transparent,” he said. 

“We’re building an underwriting workflow tool that will streamline the entire process.”

“AI has helped our IT teams improve coding efficiency—they’re saving two to five hours a week by working with AI tools. But the real revolution will happen only when we have an end-to-end AI process. We’re not there yet, but we’re getting closer.”

For MS Re, the end goal is clear. “The aim is a platform that enables us to fully leverage our data, doing away with fragmentation and bringing everything into one place. We’re building an underwriting workflow tool that will streamline the entire process, from submission to payment.”

MS Re is taking proactive steps in response to the risks and opportunities brought by climate change, economic instability, and new technologies. 

“It’s not a black swan scenario, because then you wouldn’t know about it. We need to be better at pricing for ‘grey swan’ scenarios, understanding them in their entirety,” he concluded.

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