Reduced risk appetite for political violence amid increasingly ‘unpredictable’ landscape – Howden

There has been reduced risk appetite in the political violence (PV) insurance market as reinsurers took a financial hit due to ”an increasingly unpredictable threat landscape”.

That is according to specialist insurance broker Howden, which said the PV loss profile had shifted significantly in recent years amid “growing discontent across the globe”.

Howden made the claim as it released its new World of Trouble Report today (11 April 2023), which highlighted that interacting macroeconomic and geopolitical trends “portend a structural shift in loss frequency and severity for the standalone PV market”.

It said recent unrest in South Africa and Latin America saw the value of strikes, riots and civil commotion (SRCC) claims rival or even surpass major natural catastrophe losses, while the Russia-Ukraine conflict was set to become one of the biggest PV losses on record.

“Standalone PV pricing is undergoing a correction as a result, rising by more than 80% since 2018,” the report added. 

It warned the correction in the PV market was likely to continue for much of 2023, with pressures compounded by “considerable tightening” in the reinsurance sector during 1 January 2023 renewals.

This saw retentions and pricing double in certain instances and considerable reinsurance protection was lost overall.

It comes as Howden said reinsurers suffered more than $10bn (£8.06bn) of SRCC losses since 2015.

Steve Bessant, executive director of Howden Tiger, said: “Treaty reinsurance appetite in this class declined at 1 January 2023, particularly for upfront carriers unwilling or unable to meet future treaty pricing expectations.

“The change was driven by the five key treaty reinsurers which, after recently sustaining disproportionately large losses from both standalone and all-risk policies, refused to continue on previous unprofitable conditions. 

“The effect of this change varied by peril, with capacity commitments reducing for SRCC and full PV by as much as 30% and 60%, respectively, and pricing increasing significantly across the board.

“Event definitions and terms and conditions likewise tightened at 1 January 2023 as treaty reinsurers reduced exposures, particularly in the contingent business interruption space.

“These dramatic changes have cascaded down the value chain, forcing original insurers to pass on restricted wordings, higher costs and deductibles to buyers.”

’Perfect storm’

Howden added that recent outbreaks of violence globally had reset insurers’ views of risk, with property insurers increasingly withdrawing SRCC cover as risk appetite in the standalone market reduced significantly.

“The fallout represents something akin to a perfect storm – demand up, supply down, triple-digit loss ratios and reinsurance retrenchment – resulting in a market-changing pricing correction,” it said.

Tom Bradbrook, executive director of Howden Specialty, said: “Now more than ever, risk transfer advice can make a crucial difference to renewal outcomes.

”With little prospect of a let up in market conditions, sector expertise, market-leading thought leadership and unrivalled relationships with insurers have never been more important.”

• Insurance Times has converted dollar amounts into pounds using an exchange rate of $1.24 = £1, which was correct as of 1 April 2023.