Primary insurers are best suited to “absorb frequency and attritional losses” while reinsurers are reverting to their core function of supporting underwriters in recovering from large loss events such as the earthquake in Turkey, Swiss Re says.

The reinsurer says the trend “towards a more sustainable balance in risk sharing” is expected to continue amid increasing demand for protection in an environment marked by heightened volatility.

The non-life reinsurance market is expected to grow above the pace of gross domestic product (GDP) driven mainly by inflation and urbanisation, with a 10-year outlook in US dollars showing nominal growth of about 5.4% per year, Swiss Re says.

“Strong partnerships between insurers and reinsurers, improved underwriting data, and, to a degree, a rebalancing of the risk sharing between insurers and reinsurers will be necessary for a sustainable industry and to ensure reinsurance can fulfill its core function as a shock absorber of peak risk,” Property and Casualty Reinsurance CEO Urs Baertschi said.

Swiss Re says that following years of weak performance and above-average natural catastrophe activity, the reinsurance market is reverting to a more sustainable level of risk-adjusted pricing, and the trend is expected to continue at the upcoming January renewals.

The comments were released ahead of the start of the renewal discussions between insurers and reinsurers at the Rendez-Vous de Septembre in Monte Carlo.

Secondary perils such as wildfires, floods and hail will be a key topic, the reinsurer says, as modelling the perils remains challenging and climate change effects are becoming more evident as a result of increasingly extreme weather events.

To achieve more predictable outcomes, greater data transparency and investment in predictive capabilities are required, it says.

Swiss Re says social and economic inflationary pressures are also driving up claim costs in the casualty market.

Litigation funding grew 42% from 2019 to 2022, and a Swiss Re analysis shows that between 2014 and 2021 the number of awards over $US5 million ($7.8 million) in US courts increased 54%.

The trend is expected to continue, and while it’s mainly a US phenomenon, there are signs it’s emerging in other parts of the world, Swiss Re says.