“Everyone is in agreement that we are facing some challenging times with the words, ‘unprecedented events’, ‘trade tariffs’, ‘ceasefires’, ‘rearmament’ and ‘artificial intellegence’ at the heart of our everyday business and personal dialogue, instability is seemingly everywhere.”
In conversation with ReInsurance Business at the 2025 Bermuda Risk Summit, Neville Ching (pictured) CEO of the Bermuda-based reinsurance brokerage ReFlex Solutions, highlighted how geopolitical and climate related instability is underpinning conversations across the reinsurance marketplace.
What has been interesting to see, he said, is how the major financial markets have continued performing in line with expectation even in the wake of the extreme volitility seen in recent years. These fragilities might have been expected to have more severely impacted the markets and while there’s debate about whether these risks have been “priced in”, from his perspective, the conditions of the last 18 months in particular are a clear indication that, “while we like to think we’re in control, we’re not – including in the insurance and reinsurance industry.”
The California wildfires are a testament to that, he said, as most market participants would have set a very low probability of having events of this quantum so early in the year. The unprecedented nature of the event has been a worst-case scenario for those who have felt the clash of their exposure to the FAIR plan, particularly when that starts to get into the reinsurance market and the retro markets. “You might be writing primary California business, US regional, super-regional, nationwide, and then reinsurance and retrocession – and when it all rolls up as a group exposure as part of a circa $35 billion loss, that’s when things get interesting for the risk managers.
“Because that loss takes up so much of your overall annual cat budget. Annual insured losses now sit at $130-$150 billion, which seems to be the new norm. The ten-year average was about $80 billion only a few years ago, but it has been steadily creeping up. So, if you’re looking at one-third to 40% of your annual cat budget being eaten up in the first two weeks of the year, it’s going to focus your mind.”
It’s interesting to see what’s happening with regards to California wildfire coverage, he said, because, at the same time as the pricing models are re-calibrating, the view of risk has shifted in the wake of the LA fires. That’s not only the loss and the evidence of the loss, but also the changing view of risk as a one-in-150 years events are seemingly happening with greater frequency.
“The insured loss is one thing, the circumstances surrounding the event is another thing, and then there’s a lot of internal issues to consider as well, with California wildfire and Midwest stochastic storms not being covered by some retro contracts,” he said. “Some of it came back in because the market was softening a bit, and not only price wise.
“If you ran the numbers at a particular time in January, not everyone had all the data in or was able to assess all their portfolio - so, if you ran the footprint on last year's data, it might have looked all right. Then factor in that the models changed and exposure might have changed at the last minute, then it’s no surprise that there have been some surprises.”
“The unprecedented (that word again) nature of the California wildfires, in terms of both timing and quantum is a challenge for the market,” Ching said. “But it is also an opportunity for the market to showcase its ability to react to, and adapt to, evolving risks, and provide meaningful solutions to mitigate them. Amid such significant uncertainty, people are actively looking for reinsurance solutions that will attenuate against known and unknown risks alike.”
The next stage of the awesome industrial revolution is upon us and as we ask Chat GPT to enquire about our health and wellbeing, rewrite our resume’s and predict the future, we must also reflect on the basics that underpin our existence: being relationships, our experiences from history and continue our search for security and piece of mind. This is true in our professional lives as well - core competences need to be relied upon from those we can trust.
