Geopolitical taskforces ‘fine tune’ scenarios as events occur

Geopolitical taskforces and being alert to the potential of a “domino effect” of single risks are two ways insurers are managing underwriting in today’s unpredictable geopolitical climate.

This was the view of a panel of senior industry executives speaking at the Intelligent Insurer’s  Re/insurance Outlook Europe 2023, in Zurich (June 19 and 20).

Delegates in the session, titled ‘Underwriting in a tumultuous geopolitical landscape: address current and future threats’, discussed how their organisations deal with the biggest geopolitical issues including one of the biggest, the Ukraine war.

Panel speakers included Markus Eugster, chief executive officer, Korean Reinsurance Switzerland, Marcus Gonzales, head of London reinsurance, head of casualty and marine reinsurance, international, AXA XL, and Simon Dejung, chief underwriting officer cyber reinsurance, SCOR.

Gonzales said that AXA XL created a geopolitical taskforce in the middle of last year, to manage the impacts of geopolitical turbulence. The taskforce was involved in underwriting actuarial and crisis management across re/insurance. A lot of this work was around strategic planning.

“It developed, or fine-tuned, existing underwriting approaches to business. Tied to that is the data required to accurately assess our risk and key price. The taskforce also established risk frameworks, tolerance and set budgets.

“When you think about what’s required in these kinds of scenarios, it’s first identifying perils, so the primary, then the secondary attacks, then what lines of business have been impacted by those perils. Then what exposure do they collect on those particular covers. Scenario planning as well from the more mundane to the Russia-Ukraine conflict to more esoteric scenarios involving countries in Africa. With some of the scenarios we fine tune them as events occur.”

Korean Re’s Eugster said, in essence, his reinsurer’s approach is not too different from that of AXA XL as they too look at the lines of business and the perils, but Korean Re’s global footprint is smaller than that of AXA XL.

“When it comes to scenario planning the key is to think out of the box. With the Russia-Ukraine conflict, there is the line specific aspect, then you have the aviation aspect, then the war aspect itself and you have property, you also have the macroeconomic factor, so the energy crisis.

“If you think about scenarios like China-Taiwan, you get into dimensions which are just beyond the capital possibilities for insurers. You can’t really plan for that, you only know that if that happens you don’t want to be over exposed,” Eugster said.

“The first step to understanding is knowing where you are exposed and how. Eventually, individual scenarios could be related, and you might have a domino effect of scenarios one after the other rather than thinking about individual scenarios in a box.”

Translating this into wordings can be a difficult discussion, he added. “Wording is a work in progress.”

On the cyber side, SCOR’s Dejung said: “We shouldn’t forget what property/casualty experienced during the silent cyber discussion and how quickly, after three or four years, the market model has more or less agreed on a certain level of contract certainty, which is needed to have covered the cyber and exposure on property/casualty, more property than casualty to be clear. This happened at a quicker pace by far in the cyber market.”

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.