Reinsurers face another tough year, with competition and abundant capital continuing to dampen premium rates, according to Swiss Re Chief Economist Kurt Karl.

Speaking from the Reinsurance Rendezvous in Monte Carlo last week, Dr Karl told insuranceNEWS.com.au the only immediate hope for hardening reinsurance rates is if the US Federal Reserve raises interest rates.

“This would provide other investment options for pension funds and could help stabilise rates in the reinsurance sector,” he said.

Two days after Dr Karl’s comments, the Fed decided not to raise US interest rates.

He says growth in the reinsurance sector is being driven mainly by mergers and acquisitions, due to the plentiful supply of alternative capital.

“The capital available in the market is encouraging this drive for scale, [and] we believe alternative capital is here to stay,” he said. “The Swiss Re view is that the amount of capital available in the market also won’t grow in the next few years.”

As a result of the flat market, reinsurers are “looking for new risks with better margins” to stimulate growth, Dr Karl says.

“Risk modelling is getting better and better, which allows us to work with more confidence in such areas as flood,” he said. “Flood risk is now more insurable.”

The emerging risks attracting most attention “are mainly on the technical side”.

These include driverless vehicles and cyber risk, which is a complex class that will become “a conventional part of the business over the next five years”.

Dr Karl says “not much” cyber-risk business has been written yet, and there is a great deal to learn about the complexity of threats.

“Cyber attacks can create a property risk, for example. A cyber attack on a power plant could lead to such things as overheating of lines and a fire that knocks out the entire plant.”

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