The Business Times: Higher Interest Rates, Volatile Market Expected To Hit Reinsurance Capital

The pool of funds available for reinsurance will decline as rising interest rates and a volatile market put heightened pressure on the sector. In the long run, climate change is likely to also raise the cost of capital for reinsurers. These pressures may eventually increase premiums for insurance buyers, said industry players and watchers.

The negative impact on the industry has been compounded by massive losses from catastrophic events, which are occurring more frequently than before due to climate change, said Chia Tek Yew, Oliver Wyman’s head of insurance in Asia-Pacific and vice-chairman for Singapore.

“Responses by governments and companies to develop alternative sources of energy also expose reinsurers to new types of risk, where there has been limited historical data and experiences to be able to properly price such risks,” Chia said.

Climate risk has in fact resulted in reinsurers and insurers cutting their exposures to risk-prone areas globally.

Oliver Wyman’s Chia said cuts will likely come at the expense of businesses and consumers most impacted by climate-related events, and may require some rethinking of insurance pools that must be made available to protect such businesses and consumers.

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