As per a new report from Morningstar DBRS, climate change is expected to be a meaningful primary long-term driver of reinsurance volumes. However, while the reinsurance market is currently at overcapacity, this is setting the stage for softer conditions in the medium term, the analysis states.
Analysts also suggest that as demand for reinsurance continues to rise, fueled by both climate change and growing annual catastrophe losses, the need for more reinsurance capital, including alternative sources such as catastrophe bonds and insurance-linked securities (ILS) will persist.
“As temperatures continue to rise worldwide because of climate change and global emissions, the reinsurance industry is facing increasing losses. The frequency of these large-loss events may have stabilized, but from what we can see, the severity of these events continues to rise. This should increase the demand for insurance and reinsurance coverage, driven by rising awareness, thereby closing the protection gap,” analysts from Morningstar DBRS explain.
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