Speaking exclusively to The Insurer TV, Hottinger said: “We’re midway between July and January renewals, and given the most recent events, the market needs to move substantially.”
He said the market came out of the July renewals with “a positive rate change in all regions” and expects this trend to increase in the wake of recent events in both peak and non-peak zones, spanning peak, non-peak and secondary perils.
Following a reminder from the Intergovernmental Panel on Climate Change, Hottinger said that “looking back at historical events is not enough to predict future loss costs”.
And while in the international space the market is looking to diversify to create more balanced portfolios, Hottinger highlighted that “diversification for diversification’s sake” is also “probably not enough”, reaffirming his message on the need for hardening rates and disciplined underwriting.
He said he expects underwriters to “take a hard look and [demonstrate] disciplined actions” on how certain perils are rated, particularly secondary perils.
He also highlighted that the Covid-19 loss situation “still needs to be resolved and addressed in various markets”.
“When I was summarising all these points, they might be important to a larger or a smaller degree in the individual territories, and that will ultimately determine the degree of action in those markets,” he added.
While Europe in recent years has been free of major cat events, Hottinger said the floods in Germany this year will have a “significant” impact on the market, although he noted that it’s still too early to see the whole magnitude of the losses.
Last week, German insurance association GDV said German carriers now expect to incur losses of around €11.5bn ($13.7bn) from the flooding in July and severe convective storms in late June.
Hottinger said: “It’s very likely that in 2021, the catastrophe losses in Germany alone seem to be the highest ones observed in the last 50 years – so they’re very significant.”
After the recent events, including the European floods, Hottinger said he expects underwriters to review their risk assumptions around ever-increasing insured value concentrations, such as increased exposures close to water bodies and climate-risk trends.
“I think these considerations will make it an important task for us to restore profitability and to achieve the right risk-reward balance going forward,” he explained.
Hottinger said while he would like to put Covid-19 in the past, “it’s unfortunately still an ongoing event with a lot of uncertainties”.
“The uncertainty remains because there are large parts of the world little or unvaccinated, creating a huge reservoir for the virus to continue to spread and potentially further mutate,” he explained.
In terms of Axis Re’s direct Covid-19 losses in the international P&C sector, Hottinger said they are limited to “quite a finite number of markets”, with most of them in Western Europe.
Hottinger said that it’s “difficult to make assumptions” due to the lack of comparable historical events and the ongoing impacts.
Meanwhile, he highlighted that establishing coverage and determining quantum on the original side “has made unequal progress and is highly dependent on each market’s approach”.
“Now you overlay that from the primary side, adding the dimensions of reinsurance coverage, add topics like coverage of perils, event definitions, aggregation clauses and the like – it’s invariable that the remaining uncertainty in terms of the losses is still higher even than on the direct side,” Hottinger added.
The biggest lesson to come out of Covid-19 for the property market is “the importance of coverage clarity”, according to Hottinger, who said it’s not just a financial topic, but also a reputational one.
“Thinking about those unknowns in the absence of clarity of coverage is important,” he commented. “Covid triggered us to have very open and honest discussions on our product offerings – what exactly are we covering, and how are we aggregating liability.”
He also suggested that in light of the pandemic, the exposure to systemic risks such as communicable diseases and silent cyber “needs to be addressed, properly defined and boxed in, in order not to over-promise at the end on the price and exposure, and ultimately, running the risk of under-delivering”.