Risk alignment is critical in turbulent times: MS Re

The reinsurance industry is facing high volatility, driven by an increasingly complex risk landscape and multiple sources of uncertainty. This makes an alignment of interests between all risk-carrying parties more important than ever, Jörg Bruniecki, chief underwriting officer, international, MS Re, told Monte Carlo Today.

“We see discipline in pricing, maintaining adequate retention levels and clarity in contract wordings as becoming increasingly important, and combining these factors will allow us to achieve an alignment of interests between all risk-carrying parties whether primary insurers, reinsurers or insurance-linked securities providers,” Bruniecki said. 

According to Bruniecki, all three are crucial for ensuring that everyone is invested in managing those risks across the value chain, especially as natural disasters are not the only worry.

“The first half of 2024 has already brought significant losses due to secondary natural catastrophe perils, such as severe convective storms in the US and Europe, as well as manmade events such as the Baltimore bridge collapse, the CrowdStrike cyber event, and riots in the UK and New Caledonia,” Bruniecki explained.

“The hurricane season, which is predicted to be above-average this year, could further exacerbate the situation,” he noted, highlighting the challenges posed by both natural and manmade risks.

To navigate all this uncertainty, Bruniecki sees some options.

“We need to complement experience-based underwriting approaches with enhanced scenario-based considerations in anticipation of future potential outcomes,” he stated. 

“Pricing need to consider different outcomes, and we must stay realistic not to price in the worst-case scenario but build margins into our pricing to deal with increased uncertainty,” he advised.

Emerging risks such as cyber threats and pandemics are reshaping the reinsurance market, although Bruniecki is confident the industry will win.

“Finding solutions for dealing with new and emerging risks is at the core of our industry,” he asserted, stressing that reinsurers must balance their capital carefully, ensuring they do not take on risks they cannot fully understand or price. 

“We need reliable data and sufficiently good ways to estimate how often and how severe these events could be,” he added. 

In the context of evolving market dynamics, portfolio management has become increasingly important, according to Bruniecki.

“You have to know which risks are correlated and which are not, because effective portfolio management involves designing portfolios based on investor risk tolerance and adjusting exposures based on market conditions.

“The most important thing is to manage the cycle,” he said, emphasising the need to balance risk-taking in favourable markets with caution during downturns. 

“Many losses in recent years were surprises that were not priced adequately.”

“You have to communicate well with your clients and brokers and articulate your value proposition and your risk appetite,” Bruniecki stated.

“We believe in building broad-based relationships with selected clients and thereby creating a well-diversified portfolio for MS Re in the aggregate.”

The need for growth must be balanced with risk mitigation to ensure portfolio stability, as Bruniecki pointed out. “Many losses in recent years were surprises that were not priced adequately,” he stated. 

“Uncertainties such as climate change and socio-economic shifts can lead to large losses that we don’t anticipate, which is why we need higher margins in our business to deal with them.

“For reinsurers, having broad-based relationships with clients across different lines of business helps them manage their portfolio as it helps them cope with surprises and ensure stability in volatile markets,” Bruniecki added.

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