A different lens…

We wrote recently about the World Economic Forum’s 2018 Risk Report. Now along comes another favourite, the US intelligence agencies’ annual “Worldwide Threat Assessment” (WTA), as perceived from a US-centric viewpoint. Of course, given that this is a public document, one might wonder what is left undisclosed. However, the document is instructive as, if nothing else, a signaling document.

Along with the now customary invocation of North Korea’s possession of nuclear weapons as an “existential threat” to the US, and the frequent mention of the various threats posed by Russia and China, some additional items are worth noting.

The lead-off topic was “Cyber Threats”. While much of the concern relates to criminal, state, and non-state actors trying to influence behaviour or policy, it is worth noting that attacks on commercial targets are also expected to increase significantly, as malign capabilities develop and spread (and this is in a world in which the Internet Of [connected] Things is becoming a reality). Therefore, while (re)insurers desperate to increase premium flows are focused on building their “cyberrisk” books of business, it is probable that the frequency and scale of losses will continue to increase, leading to the question of whether companies will be able not only to price for the true level of risk, but also identify and manage their aggregations effectively.

Another topic which is given less prominence, but is also of considerable interest to the (re)insurance industry is “emerging and disruptive technologies”, such as Artificial Intelligence (AI), biotechnology (e.g., artificial gene synthesis) and the creation of advanced materials, including nanotechnologies. While of great potential benefit, the scope for misuse and the lack of controls or understanding are likely to lead to new types of “events”, causing difficulties in realistic pricing and the management of such risks. There is going to be a premium upon underwriters with “hard”, specialist knowledge for those companies intending to make a serious commitment in these areas.

Interestingly, DNI Coats also went on the record expressing concern that the level of US government debt and the rise in the fiscal deficit as a result of the latest Federal Budget, coupled with political “fractiousness”, represent a serious threat to the long term ability of the US to defend itself and achieve its policy aims. “Unsustainable” was the term used. Of course, this is hardly a new sentiment or criticism directed at Congress, but the language used is unusually blunt. And one should bear in mind that, arguably, the demise of the former Soviet Union was hastened by its rising economic instability. No-one is suggesting yet that the US is going to “implode”, but the warnings are instructive; and, naturally, the outcomes that such a trend can create, if not addressed, are of considerable interest to (re)insurers, including Awbury, who are focused on credit, economic and financial risks.

Naturally, at Awbury, our focus on longer tenor business means that we are constantly conducting our own threat assessment, aiming to winnow the “interesting but implausible” from the “real and probable”, so that we can avoid “fat tails”, and continue to provide our clients and partners with value-added solutions to complex issues that benefit from the application of a different lens (or approach) to the industry.

The Awbury Team

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