The mystery of post-pandemic big single risk insurance losses

Along with topics such as inflation and the supply of capital in certain markets, Mark Senkevics (pictured), Swiss Re head of P&C underwriting in Asia, Australia and New Zealand, says a key topic for conversation at this year’s SIRC is the current trend for large single risk losses.

“They seem to be going through some form of bizarre cycle right now, and we’re uncertain as to what the cause is,” Senkevics said.

One example is semiconductor plants, which have recently given rise to a significant number of claims—and Swiss Re is working to understand why this is happening.

“It could be the lack of maintenance during COVID-19 or the increase of manufacturing post the pandemic to satisfy big demand from various industries,” said Senkevics.

Another trend across much of the region is for storage facilities to catch fire—and there have also been claims in the petrochemical space.

“We’re monitoring that very closely to try and understand better what trend might lie behind it,” he said.

Besides the theory that maintenance issues lie behind the claims, other possibilities include the age of some of the manufacturing stock—particularly for semiconductors in Japan and Korea, where much of the manufacturing stock dates from the 1990s.

Another possible culprit is an ageing and retiring workforce.

“Those with deep familiarity in terms of how a client might have operated are retiring and being replaced by much younger people who haven’t learned from the ups and downs how these plants work,” said Senkevics.

While all of the above theories are being investigated, none has yet been determined as the true cause.

Looking at the Asia-Pacific region as a whole, Senkevics highlighted climate change and the impact of COVID-19 as enduring topics, with the region affected by a wide array of cat perils and China still undergoing COVID lockdowns from time to time.

In terms of climate change, there have been unprecedented flood losses and unusual events such as the powerful hailstorm in Japan and drought in China to contend with.

“When we say unprecedented, it’s over 150 years of measured weather, and predicting that moving forward is very challenging,” he said.

“You need to price for it among the insureds—the primary insurers need to be considerate of that, and then think about how much of the risk can they carry themselves, and how much do they want to pass to the reinsurance market?

“The predictability is something that can be adjusted only on an annual basis,” he added.

“We have the ability to price annually, but our insurance clients need to adjust the pricing, and that becomes more challenging. The economic environment is what it is right now—affordability is increasingly an issue, and insurability becomes an issue as well.”