The reinsurance sector, underpinned by complex interdependencies and a rapidly shifting risk landscape, necessitates deep understanding and continuous adaptation. Chief Actuary Berkley Asia Pacific, Darren Ma, has an impressive 16-year tenure spanning various international markets, including Bermuda, US, London, Europe, Australia, and Asia. He shares invaluable insights on navigating this challenging field, with a particular focus on emerging risks.
Over the years, Darren has witnessed the industry evolve and adapt to changing dynamics. His time in Bermuda exposed him to a microcosm of the industry’s broader trends, providing invaluable experience that was honed and refined over a decade in Singapore. Balancing the learnings from established reinsurance markets with an understanding of the unique business nature in Asia and Australia, he has helped steer the path to profitable growth in challenging environments.
Emerging Risks: Inflation and COVID-19 still Largest Contributors
At the core of these challenges, and the focal point of our discussion, are the emerging risks that insurers are grappling with in the current landscape. Today’s insurers find themselves navigating a whirlpool of inflationary pressures, regulatory uncertainties, and unpredictable claim trends.
Inflation, Mr Ma warns, is a growing concern that manifests in multiple ways.
“Above average consumer inflation is resulting in higher claim costs, and social inflation is impacting future estimates and settlements. There is uncertainty around the future cost of care, worker to worker claims and increasing proportion of claims with a psychological element. Increasingly there is uncertainty around disruptive technology such as Generative AI, which may introduce new unknowns into the insurance space.”
Adding another layer to this already intricate puzzle is regulatory uncertainty, chiefly surrounding legislative changes enabling litigation funding arrangements and class actions. Then, there’s the ever-looming threat of natural catastrophes, their impact exacerbated by climate-related risks and the litigation exposure around climate-related disclosures.
“Whilst insurers are facing these cost pressures, they are also challenged with the continued need to push rates in light of affordability concerns and increasing competition.” Added Mr Ma
The aftermath of the COVID-19 pandemic has further complicated matters. With consumer inflation rates escalating, there has been a consequential increase in reinsurance costs. Particularly affected are the excess of loss programs, where inflated claims costs are now exceeding reinsurance attachment points.
“The percentage change in layer losses above these retentions is also much greater than the percentage change from the ground up losses. Hence the pressure on reinsurance programs, especially those with a longer duration of liabilities and those where the retentions have been unchanged for many years. These have been partially offset by indexation clauses which help to inflate the retentions over time.”
The uncertainty surrounding claim frequency in the post-COVID-19 environment presents an additional challenge.
The Role of the Actuary: Data Driven with a Human Approach
In this labyrinth of emerging risks, the role of actuaries is evolving. Mr Ma emphasises the importance of both technical acumen and human skills.
“Stakeholders can be varied and the style needs to be tailored depending on the audience – for example- reporting results to management or discussing difficult renewals with underwriters. Another key attribute is curiosity, and the willingness to continually learn and improve things.”
Efficient data collation, transformation, and parameterisation are crucial, leveraging tools such as SQL for data manipulation, ResQ for reserving, and PowerBI for management reporting. Additionally, soft skills like effective communication, adaptability, and continuous learning can set future actuaries apart in this increasingly data-driven world.
As we face an unprecedented convergence of risks, the unique ability of actuaries to synthesise complex information, overlay judgment, and articulate key outcomes becomes ever more invaluable. These insights serve as a timely reminder of the evolving challenges faced by the reinsurance industry and the crucial role that skilled actuaries play in navigating these challenges.
