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Baden-Baden 2022

Inflation: transparency and close cooperation with our cedant clients are essential

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SCOR - Stuart McMurdo Edits

As we see a surge in inflation globally, it is now critical that everyone is aware of the implications this will have along every step of the insurance and reinsurance value chain.

The risk we as an industry face – a risk that is in some cases already being realized – is that inflation will lead to larger than anticipated claims that will outpace the vital and hard-won premium increases over the last years. In order to get ahead and stay ahead of this problem and ensure the mutual success of all industry players, insurers and reinsurers have a responsibility to set sound pricing structures that take account of these inflationary pressures. In order to achieve this, cedents and brokers must ensure transparency and offer insight into how they are treating inflation in their businesses as we engage in the renewal conversations.

As the January 2023 renewals approach, inflation will be a key consideration. Acknowledging that the market needs correction is the fundamental first step. Maintaining the status quo means accepting ongoing losses, which ultimately leave us with an unsustainable reinsurance marketplace. Without this, the industry is less robust and less prepared for unanticipated shocks, a reality that would hamper our ability to protect policyholders and finance the resilience of society.

For this market correction to be successful, we must ensure we understand what measures our cedants are already taking to counteract the impacts of inflation so we can be sure that any measures we implement do not duplicate the actions already taken. This is why transparency and close cooperation are essential this renewal season. So far, we have been pleased with the openness we’ve seen with our cedents and brokers. This will enable us to better price reinsurance programmes moving forward.

When considering the market position overall, we must acknowledge that driving this change needed to address the impacts of inflation will require exigence on multiple fronts: significantly improved pricing, correction of reinsurance structures, and clearly worded contracts with appropriate terms and conditions.

Both proportional and nonproportional treaties feel the pinch of inflation, though the drivers are different. On the proportional side, reinsurers will need to closely review the ceding commissions granted, while the insurers need to return to their underlying books of business to secure adequate rate increases. Meanwhile, reinsurers need to reposition their exposure triggers when it comes to the non-proportional cover supported and return their attention to severity protection and move away from the frequency loss exposure that we see today.

Finally, we must recognize that the wording of a contract is as important as accurate pricing and sound structures. The terms and conditions of a treaty can enforce or undermine its resilience in the face of changing market conditions.

SCOR has capacity to deploy where conditions are right and in markets that are responsive to the evolving risk environment and the impacts of inflation. The sustainability of the (re)insurance industry – and the mutual success of both SCOR and our cedant clients – demands that we are uncompromising in our expectations for market change and that we back partners who have shown their dedication to this goal, transparency in communicating the measures they have taken, and structure their business accordingly.


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