World crises driving 'virtually unprecedented' complexity for insurers

The combined effects of economic and geopolitical crises are driving “virtually unprecedented levels of complexity” in the business environment for insurers and reinsurers, according to Munich Re. High inflation is having an especially profound impact on loss expectancy in many operating segments. Also driving the issue are the changing landscapes for risks like cyber and climate change, and the fallout from the COVID-19 pandemic.

In an effort to combat skyrocketing inflation, central banks have hiked interest rates, which in turn can impact the balance sheets of insurers and reinsurers as a result of fixed-interest securities losing value. Rising interest rates can also initially trigger a decline in re/insurers’ capital bases and affect their capacity, despite higher rates having a positive impact on earnings in the medium term, Munich Re said.