20241017PAC to Staff 97-2 Attachment - 2024 howden-2024-a-turning-point.pdf

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2024 : a turni* ng point .

Key
A heightened and changeable risk landscape led With little prospect of the threat environment
by a global macro reset brings major implications relenting, businesses need to prepare for, and protect
for security, investment, trade, supply chains and themselves against, escalating risks that traverse
political stability. macroeconomics, geopolitics and technology.
Economic uncertainty, an upsurge in armed conflict and the 'biggest In doing so, they are encountering a receptive insurance market as
election year ever' present elevated risks for 2024. competition yields more favourable conditions.
Uncertain future direction of inflation Red Sea threat to global shipping Trajectory of global commercial insurance pricing by major line of business
Source:Howden,government statistics Source:Howden,IMF Portwatch Source:Howden,NOVA
2020 2021 2022 2023 2024 Oct-23 Nov-23 Jan-24 Feb-24 Mar-24
— U.K. U.S. — Euro area — Japan — Suez Canal transits — Cape of Good Hope transits
Supply chain disruption Elevated levels of civil unrest 2010 2012 2014 2016 2018 2020 2022 2024
Source:Federal Reserve Bank of New York Source:Howden,ACLED
— Global property Global casualty — Global financial lines — Global energy
By stepping up at this time of instability, and maintaining
coverage in high-risk areas, insurance is enabling trade
worldwide. Expert advice can make all the difference in
securing protection at the best possible terms. Howden
exists to support clients in managing market change and
maximising their potential.
2010 2012 2014 2016 2018 2020 2022 2024 2020 2021 2022 2023 2024
2 Howden 2024:a turning point? 3

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Long-held consensus around the demise of
inflation and everlasting cheap capital has
been ended by a series of shocks that not only
culminated in the sharpest rise in prices and
interest rates for a generation but has also brought
v
a geopolitical reset that carries considerable
II
global implications for security, investment, trade,
supply chains and political stability.
The global economy has proved to be surprisingly resilient to these
transformative changes.Despite navigating significant volatility and
uncertainty in the wake of COVID-19, Russia's invasion of Ukraine and
now shipping disruption in one of the world's most crucial trade routes
due to war in the Middle East,growth has held up better than expected
and defied widespread predictions of recession.
2024:a turning point? 5

Executive summary
2024: a turning point? ram;°
Expectations for the year ahead are positive,
with upward revisions to growth indicative of the
optimistic mood that has propelled equity markets
to record highs in several countries. Sticky inflation
(driving claims higher), elevated interest rates and *'
heightened geopolitical tensions continue to hang
over the global economy, however, and with the
'biggest election year in history' taking place in 2024,
businesses and (re)insurers continue to operate in a
high-risk environment.
The analysis that follows in the pages ahead portrays a highly complex and x
changeable risk landscape that traverses macroeconomics,geopolitics
and technology.Tensions are high as more than 40%of the world's
population vote against a backdrop of economic uncertainty and an
upsurge in armed conflict,as well as the proliferation of social media and
artificial intelligence.
The risk of escalation in hot spot areas is ever present.The war in Ukraine
is now in its third year and the danger of intensification continues to pose a
threat to global security.Contagion or prolonged disruption to shipping in a,
the Middle East could likewise see risks escalate and reverse recent global
disinflationary trends.
r
Civil unrest remains at elevated levels in'stable'countries due to
underlying grievances tied to inequality,the cost-of-living crisis and
broader disenfranchisement.There are also broader power dynamics at
play as world powers look to establish dominance in areas where materials •}
crucial to the energy transition are sourced.'
6 Howden
d

Insurance: stepping up
All of which is impacting decision-making around
investments, supply chains and operations. With
little prospect of the macro-environment relenting,
r businesses need to prepare for, and protect
themselves against, escalating risks. In doing so,
they are encountering an insurance market receptive
to supporting clients as competition yields increased
capacity and relatively stable pricing.
By stepping up at this time of instability,and maintaining coverage in
high-risk areas,insurance is enabling commerce worldwide that allows
ships to sail and businesses to invest.More work nevertheless needs to be
done for under-insured exposures that are particularly relevant today,like
supply chains and non-damage business interruption.Advances in data
and analytics,alongside creative thinking around traditional structures and
parametric triggers,will yield mutual benefits to buyers(new products)and
carriers(new growth opportunities despite waning price momentum).
Howden stands at the forefront of these efforts by applying
differentiated insights and expertise to deliver pioneering solutions.With
{ macroeconomic and geopolitical shocks fuelling uncertainty,(re)insurance
buyers require detailed analysis into key market drivers.Howden is leading
the charge by providing cutting edge thought leadership and risk transfer
advice to support clients in managing extreme volatility and maximising
their potential.
2024:a turning point? 7

The polycrisis era
Mhh—dj Ow J& —� I
The concept of risk and resilience has been
transformed by accumulating and intersecting
crises. A global pandemic, devastating wars,
price shocks and weakening global trade have
ended the world's `holiday from history' to bring
heightened security threats, higher inflation,
tighter monetary policy, volatile commodity
prices, geoeconomic fragmentation, supply chain
disruption, tapered economic growth...the list
goes on.
Events have also demonstrated how perils Little surprise then that an array of societal
once viewed as distinct or independent— risks(polarisation and cost-of-living),
risks such as wars,civil unrest,commodity economic risks(supply chains and growth
crises and supply chain failures—can in fact concerns)and geopolitical risks(conflict
be linked and strike simultaneously.The scale and critical infrastructure attacks)feature
of events has moved loss scenarios from the alongside climate and cyber in the World
theoretical into the real world and,in doing so, Economic Forum's list of top global risks for
caused a marked shift in risk perceptions for 2024(see Figure 1).
businesses and(re)insurers.
8 Howden

Figure 1:Top 10 risks most likely to present a material global crisis in 2024'
(Source:World Economic Forum)
Extreme weather
AI-generated
misinformation and
disinformation
Societal and/or
political polarisation
Cost-of-living crisis
Cyber attacks
Economic downturn
Disrupted supply
chains for critical
goods and resources
Escalation or
outbreak of interstate
armed conflict(s)
Attacks on critical
infrastructure
Disrupted supply
chainsforfood
0% 10% 20% 30% 40% 50% 60% 700/c
Economic � Environmental — Geopolitical Societal — Technological
' Respondents asked to select up to five risks from 20 pre-selected risks.
2024:a turning point? 9

The polycrisis era
Rise and fall of inflation
This new macro regime has brought structural change,with higher inflation fuelling the cost-
of-living crisis and weighing on economic growth,as well as driving insurance claims higher at
a time of significant loss activity.Figure 2 shows how inflation has trended in major economies
since 2020,with headline readings last year falling rapidly from multidecadal highs(China apart).
However,core inflation,which strips out volatile food and energy components,remains sticky.
Having navigated a perfect storm in 2021 and 2022 of surging post-COVID demand,limited
supply and a commodity shock following Russia's invasion of Ukraine,last year's disinflation
was driven by sharp reversals in energy costs,along with the unwinding of pandemic-related
supply chain bottlenecks and decelerating goods inflation.The course and cause of inflation
from here will be key inputs into asset valuations,(re)insurance supply and demand,pricing and
claims inflation.
Figure 2:Headline and core inflation for select advanced economies—1 Q20 to 1 Q24
(Source:Howden,government statistics)
Headline inflation Core inflation
12%
10%
8%
6%
4%
2%
!.
0%
-2%
O O N N M M V O O N N M M V
N N N N N N N N N N N N N N N N N N
C 3 CO COC C C 3 C C 3 c C 3 C 3cc
C
United Kingdom — United States •••• Japan — Euro area •••• China
10 Howden

Goods vs services
Figure 3 charts the rapid rise in the cost of U.S.goods through 2021 when supply was unable to
keep up with demand.This was due to sudden changes in consumer spending patterns brought
about by waves of pandemic-induced economic shutdowns and restarts,alongside increased
disposable incomes off the back of fiscal and monetary stimulus in advanced economies.
Easing supply-side pressures in 2022,coupled with softening demand,were key factors in
stemming and then reversing the surge in goods inflation.Shifting drivers of inflation recorded
in recent CPI reports(from goods to more rigid services)point to some stickiness in 2024 and an
uneven route back to target,especially as services inflation persists and goods deflation is now
showing signs of easing(one to watch in relation to shipping disruption in the Red Sea).
Figure 3:Goods vs services:U.S.sectoral CPI index and spending patterns—1Q19 to 1 Q24
(Source: Howden, BLS, BEA)
130 36%
125 35%
120 � 34%
115 33%
110 32%
105 31%
100 30%
95 29%
O O O N N M M V
N N N N N N N N N
C 3 C C C C
(6 cp c6 CO (6 (6
Services CPI(LHS) — Durable goods CPI(LHS) •••• Goods share of total spending(RHS)
1 • point?

The polycrisis era
Supply chains
The unwinding of COVID-related supply The current situation in the Middle East has
chain dislocations assisted disinflationary not had such far-reaching effects,although
forces last year,although ongoing disruption escalation remains a real threat.The most
to shipping in the Red Sea has rekindled recent reading of the Global Supply Chain
concerns about resilience.One indicator of Pressure Index isjust above its long-term
supply chain disruption,the Global Supply average.Prolonged disruption to shipping
Chain Pressure Index(shown in Figure 4), in the Red Sea nevertheless poses a risk
underscores the shock caused by COVID to recent global disinflationary trends,
(exacerbated by the Suez Canal blockage especially when traffic in the Panama
in 2021)as factory closures,rising shipping Canal(another important shipping route)is
costs,disrupted logistic networks and currently restricted by low water levels due
longer delivery times stretched just in time' to drought.
production models to breaking point.
Figure 4:Global Supply Chain Pressure Index—1997 to 1Q242
(Source:Federal Reserve Bank of New York)
5
4
3
-2
n cD
OO O O N m V LO CO n cD O O _ m V L2 C2 cD O O N m V
O) O) O OOOOOOOOO O OOOOOOON ONN N
O O O O O O O O O O O OOO O ON
N N N N N N N N N N N N N N N N N N N N N N N N
Standard deviations from average value
2 Federal Reserve Bank of New York,Global Supply Chain Pressure
Index,https://www.newyorkfed.org/research/policy/gscpi.

Commodity prices
Energy prices have been the single most important factor in driving(dis)inflation over the last
three years.Figure 5 shows that prices for various commodities were already on an upward
spiral in 2021,only for Russia's invasion of Ukraine in February 2022 to trigger an energy shock
not seen since the 1970s.
Figure 5:Global Commodity Price Index-2019 to 1024 (Source:Howden,IMF)
300
250
200
150
100
50
0
Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23 Jan-24
— Energy — Food Metals — Industrial
This immediately fed into broader inflation figures(food prices are also closely correlated
to energy costs),in Europe especially given its heavy reliance on Russian energy supplies.
Natural gas prices in Europe rose 11-fold in the immediate aftermath of the invasion and
accounted for more than 40%of overall inflation at the height of the crisis.
Since then,energy prices have not only stabilised but turned negative,driving headline
inflation down to pre-Ukraine war levels in several countries(as shown by European data in
Figure 6).Events in the Middle East have so far had a negligible effect on energy prices but
carry considerable escalatory risks.
Figure 6:Components of annual inflation in Europe-2021 to 1024
(Source: Howden, Eurostat)
12%
10%
8%
6% I4%
-2%
Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23 Jan-24
mo Services Goods mm Food mm Energy — HICP
2024:a turning point? 13

Labour market
Persistent underlying price pressures associated with tight labour markets and high wage inflation
are often cited as the(hard)'last mile'in bringing inflation back to target.Figure 7 illustrates this in
the United States and United Kingdom in particular where wages have generally exceeded prices
during a period of rapid increase.
Figure 7:Wages vs prices in United States,United Kingdom and Eurozone—1019 to 10243
(Source: Howden,BLS,ONS,ECB)
United States United Kingdom Eurozone
130
120
110
X Z41
100
90
rn o N CO v M o N cm a rn o N m v
N N N N N N N N N N N N N N N
C C C C C C CO C C C C C C C C C C C
cc CO m m co <a co ca cc ca <a m cc cc CO ca cc
— Wages Prices
Changes to labour supply appear to have added to inflationary pressures in certain economies.
Figure 8 on page 15 shows how the economic activity rate for people of working-age(indicative
of labour supply)in the United Kingdom has fallen since COVID,with seemingly little prospect of
returning to pre-pandemic levels over the next couple of years.
s Wages=hourly earnings for U.S.,regular pay for U.K.and compensation per employee for Eurozone.
14 Howden

Figure 8:Workforce participation rate in United Kingdom-2015 to 2025F
(Source:Howden,LFS,OBR)
64.5%
COVID-19 Forecast
outbreak
64.0%
63.5%
63.0%
62.5%
62.0%
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Policymakers will be closely monitoring labour and wage data through 2024 to determine the path
of interest rates,which remain at post-financial crisis highs after the most rapid cycle of monetary
tightening in recent memory in 2022 and early 2023(see Figure 9).Sticky inflation and the
resilience of advanced economies have pushed back expectations for interest rate cuts deeper
into 2024.
Figure 9:Rising interest rates and inflation in advanced economies-2019 to 2024
(Source:Howden,BIS,OECD)
8%
7%
6%
5%
4%
3%
2%
1% --
0% —..............................................................................................
-1
2019 2020 2021 2022 2023 2024
G7inflation New Zealand — U.S. U.K.
Canada Euro area Australia — Japan
2024:a turning point? 15

The polycrisis era
CPI vs claims inflation
Inflation has driven a significant increase in insured valuations and changed the underwriting
environment by impacting claims costs,reserving and pricing.Shorter-tail lines have been most
impacted by inflation so far,as elevated costs(materials and labour)and replacement values,in
addition to supply chain issues and longer repair times,have exacerbated claims severity.
Figure 10 shows how these dynamics pushed up construction material costs higher than headline
inflation in the United States and United Kingdom through 2021 and 2022,before moderating
last year.
Figure 10:Construction material costs in United States and United Kingdom vs headline CPI
—1Q20to 1 Q24 4 (Source: Howden, BLS,ONS)
United States United Kingdom
40%
30%
20%
10%
0%
-10%
O O N N CO M V O O N N M M V
N N N N N N N N N N N N N N N N N N
C C C C C C C C C C
CO � (6 � f0 � MM MM � M � M � (6 � (6
Construction materials — Headline CPI
4 U.S.=PPI by Commodity:Construction Materials and U.K.=Construction Material Price Indices(All Work)
16 Howden

Wages are another important input into claims inflation,and pressures here have been less acute,
albeit up significantly on prior years.Figure 11 compares U.S.wage data in the construction
sector with the cost of materials(indexed back to 2019).Materials are up close to 40%during this
timeframe,compared to a more modest 23%for wages.
Figure 11:Wages vs cost of materials in U.S.construction sector-1Q19 to 1Q24
(Source: Howden, BLS)
150
140
130
120
110
100
90
rn rn M M 0 0 0 0 - - - - (N N N N m m M m v
7 7N N N N N N N N N N N N N N N N N
@ Q +
� U Q � U M Q � U �
Q O
Cu 0 Q 0 -) Q -) O -) Q O
U.S.construction wages — U.S.construction materials
Inflation has driven a
significant increase in
insured valuations and
changed the underwriting
g
environment .
2024:a turning point? 17

The polycrisis era
This is indicative of significantly higher claims costs for property risks in what has been a
particularly active period of loss activity—the previous 5-year timeframe of 2014-18 saw
materials increase by 12.5%and wages by 15%.
Whilst wage inflation's higher weighting for claims development has provided some mitigation
against the more headline-grabbing inflationary effects from materials,substantially higher
costs in the round have been a major factor in sustaining rate momentum in the property
market(alongside increased reinsurance costs).This correction has seen pricing reach
sufficient levels to absorb higher inflation and replacement costs.
The motor market has likewise experienced stark inflationary headwinds for physical damage
components.High vehicle values and rising labour and parts costs(as shown by U.K.data in
Figure 12)caused claims severity to rise significantly above historical averages,triggering a
market correction as carriers have pushed up prices substantially to catch up.
Figure 12:Wage and loss costs components for United Kingdom motor market—
2019 to 2023 (Source:Howden,ONS)
140
130
120
110
100 .r
90
80
Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23 Jan-24
— Maintenance and repairs •••• Spare parts — New cars • • Wages* — Old cars
*Wages=3-month rolling average for maintenance and repair of motor vehicles and motorcycles
18 Howden

Long-tail lines are typically more sensitive to inflation,given impacts accumulate over a longer
period.Medical-related costs,an important loss indicator for an array of casualty classes,
remain relatively benign but legal costs have increased more significantly.Sustained wage
growth in recent years has provided a significant premium boost for certain casualty classes
such as employers'liability and workers'compensation.
Whilst economic inflation will continue to have an important bearing on loss severity, much
of the concern centred around the U.S. liability market currently stems from non-economic
factors linked with social inflation—an active and aggressive plaintiffs'bar,higher litigation
costs,increased attorney involvement in the claims process,growth of third-party litigation
funding,anti-corporate sentiment—prompting several (re)insurers to strengthen reserves
during 4Q23 earnings season.
Figure 13:CPI for categories relevant to liability lines in the United States—1Q20 to 1Q24
(Source: Howden, BLS)
130
120
110 /
100
90
Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23 Jan-24
Legal services — Wages(hourly earnings) — Medical care
2024:a turning point? 19

The polycrisis era
Post-peak market cycle Figure 14:Global commercial insurance pricing indices by key lines of business-2010 to 2023
(Source:Howden,NOVA)
All of which has extended an already protracted insurance market cycle,with
successive quarters of rate gains providing a substantial underwriting uplift for — Global property — Global casualty Global financial lines — Global energy
carriers. Howden data in Figure 14 shows the trajectory of global commercial
insurance pricing across major lines of business since 2010. 180
Market conditions are starting to shift,however.Increased capacity and competition
are now yielding more positive conditions for buyers,with areas like cyber,financial
lines and workers'compensation,seeing rate decreases.Rate momentum is also
typically moderating elsewhere,including property,as appetite is increasing off
the back of strong underwriting results.Ambitious growth targets for 2024 point to
satisfaction on the part of carriers that price adequacy has been reached in most 160
lines of business.
Rising self-insurance and increased use of captives nevertheless point to difficulty
some buyers are encountering in finding protection for challenging and emerging
risks.With uncertain macroeconomic conditions,wars raging in Europe,the Middle
East and Africa and a flurry of polls set to shape the risk landscape for years to come,
businesses are operating in a high-risk environment.It is therefore incumbent on 140
brokers and risk carriers alike to apply their considerable knowledge and expertise
to ensure risk transfer solutions keep pace with clients'changing needs.
120
100
80
60
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23 Jan-24
20 Howden 2024:a turning point? 21

•
202 ED a turning
0 poin ,., .
2023 ended on a strong note from a
macroeconomic perspective as resilient growth,
steeper than expected falls in inflation and
building expectations for lower yields coalesced
to drive a robust rally in financial markets.
Despite the ongoing war in Ukraine and the outbreak of war in the Middle East,commodity prices
remained stable and optimism grew around a so-called'soft landing'for the global economy.
Since then,stocks have sustained their upward momentum,with several equity markets
reaching record highs in 1Q24.Bond markets,meanwhile,are down modestly on the year(after
recording a stellar two-month run in November and December 2023)as expectations for interest
rate cuts have been pared back.Having fallen in unison in 2022 as markets adjusted to end of
cheap capital and low prices,Figure 15 charts the divergent paths taken by global equities and
global bonds since mid-2023.
Figure 15:Diverging trajectories of stocks and bonds in 2023124 (Source:Howden,Bloomberg)
110
100
90
80
VWV
70
Jan-22 Apr-22 Jul-22 Oct-22 Jan-23 Apr-23 Jul-23 Oct-23 Jan-24
— Global stocks Global bonds
Global stocks=MSCI World Equity Index and global bonds=Bloomberg Global Aggregate Bonds Index
22 Howden

The S&P 500 has led the equities charge due to the enduring strength of the U.S.economy
and the considerable bearing of the'Magnificent Seven'tech stocks.Other equity markets,
such as those in Japan and Europe,have also reached record highs,despite lacklustre growth
projections in these regions.
Figure 16:Performance of major equity markets in 2023/24 (Source: Howden,Bloomberg)
140
130 AX
.f% ni M
1
120
110 A A. - ► - rl
100
90 '
80
70
Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-24 Mar-24
S&P 500 Nikkei 225 — DAX Index CAC Index ..•. FTSE 100 .... Shenzhen CSI 300
Converted to USD and indexed to 100
2024:a turning point? 23

2024:a turning point?
A world of risk
This rally marks an extraordinary run considering markets are operating in an environment
of higher inflation and interest rates,with consensus forecasts shifting perpetually.Such
uncertainty,combined with several hot conflicts around the world and the prospect of political
turbulence in what has been termed as the'biggest election year in history',pose elevated
risks in 2024.
The political
ros ect of
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turbulence in what has
been termed as the x _
' biggest election year = ^ �
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elevated risk in 2024, Ji 7 � fi
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24 Howden

Macro uncertainty
Shifting narratives around the macroeconomic outlook—from the roaring 2020s to recession,'soft
landings'or even talk of a Goldilocks market—reflect the degree of variability introduced into the
global economy by successive shocks.
Despite the changeable backdrop,major economies have proved resilient.Growth has held
up better than expected,disregarding concerns that measures to tame inflation would lead to
recession.Underlying performance remains stifled,however.Figure 17 shows that most major
economies look set to register lower growth this year and next compared to pre-COVID years,with
China likely to experience a marked deceleration.
Figure 17:Projected 2024-25 GDP growth vs recorded performance in 2014-19 for top 20
economies (Source:Howden,IMF,Bloomberg)
8%
India
Z'0
6% /
Indonesia
LO
N
o 4%
N
L
3 China
2
rn
0-
0 Russia
0
2% __ OF
� Brazil
a)
o France
a` United States
Japan
Germany United Kingdom
0%
-2%
-2% 0% 2% 4% 6% 8%
Recorded GDP growth,2015-19
0 Top 10 economies(based on 2023 PPP) Remaining top 20 economies

2024:a turning point?
Tight labour markets,upside surprises to inflation in the first few months of the year and
receding recession fears have tempered expectations for monetary policy loosening.The U.S.
Federal Reserve is now projected to reduce interest rates three times this year versus the six
or seven cuts forecast late last year,triggering a modest rebound in government bond yields
(as shown by Figure 18).
Figure 18:10-year government bond yields-1Q23 to 1Q24 (Source:Howden,Bloomberg)
5.0%
4.5%
4.0%
3.5%
3.0%
• .. ,M . •.• ..•
2.5% ,,
2.0% "
1.5%
Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-24 Mar-24
— United States — United Kingdom France •••• China •••• Germany
The resilience exhibited by major economies is expected to prevent recession in 2024,which
bodes well for a(re)insurance market looking to sustain its recent run of above-trend premium
growth.Low underlying productivity growth and higher interest payments on government,
corporate and consumer debt are nevertheless likely to weigh on economic activity,impact
investment plans/public spending and make governments less willing(and able)to backstop risk.
Figure 19:Government interest payments as%of revenues (Source:IMF)
14%
Forecast
.......... ........
.............
12%
8%
6%
4%
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028
Advanced economies — Emerging economies — Low-income and developing countries
26 Howden

Geopolitics
Geopolitics has played a dominant role in shaping the macro and loss environment in
recent years and is front and centre in 2024.War in the Middle East,as well as other risks
that extend to the ongoing conflict in Ukraine and persistent tensions across the Taiwan
Strait,threaten energy security,global supply chains,international trade,and, by extension,
resurgent inflation.
Figure 20:Elevated geopolitical risks and key supply routes for global energy trade
(Source: Howden, U.S.Energy Information Administration,Geopolitical Risk Index)
Geopolitical Risk Index`
350
300
250
200
150
100
50
0
2020 2021 2022 2023 2024
Chokepoints in global energy trade(%of 1 H23 trade)
30%
25%
20%
15%
10%
5%
0%
Hormuz Suez&SUMED pipeline Bab el-Mandeb
Oil � LNG
Caldara,Dario and Matteo lacoviello(2022),"Measuring Geopolitical Risk,"American Economic Review,April,
112(4),pp.1194-1225.Data downloaded from https://www.matteoiacoviello.com/gpr.htm on 21 March 2024.
Missile and drone attacks on commercial ships in the Red Sea by Yemen-based Houthi
militants are the latest shock to global commerce and supply chains. Resurgent activity by
Somali pirates has also been recorded recently.The second chart in Figure 20 highlights the
risks associated with escalation in the Middle East,given the importance of regional trade
routes in transporting oil and gas(in this case)to the Americas,Asia and Europe.
2024:a turning point? 27

2024:a turning point?
U.S.airstrikes on military targets in Yemen have done little to contain the attacks so far.
Vessels carrying goods and energy supplies have been forced to reroute around Africa as a
result,adding up to 10-15 days to typical journeys from Asia to Europe,thereby lengthening
delivery times and absorbing capacity in the container sector,as well as increasing costs.
The marine war insurance market continues to support vessels transiting difficult areas,with
pricing adjustments reflecting heightened risks. Freight rates have also increased,with third-
party data(from Freightos)showing a three-fold increase for certain routes since the start of
the crisis.They nevertheless remain well below levels reached in 2021/22 and have moderated
in recent weeks.
Figure 21:Shipping disruption in Red Sea (Source: Howden, Freightos, IMF Portwatch)
Daily vessel transits" Global container freight rates
100 16
80
12
60
V)
0
s 8
0
U)
D
40
4
20
0 0
Oct-23 Nov-23 Dec-23 Jan-24 Feb-24 Mar-24 2021 2022 2023 2024
Suez Canal — Cape of Good Hope — Global — Asia to Europe
7-day moving average for vessel transits
Direct insured losses from hostilities in the Middle East remain relatively contained. Indirect
impacts have also been limited so far,with little movement in commodity prices and isolated
impacts to industrial production(car factories in particular)and retail supplies. Prolonged
disruption or contagion could nevertheless see risks escalate and reverse recent global
disinflationary trends. Indeed,analysts are warning that disruption of up to a year could see
goods inflation rise by 1-2%.
Insured losses from Ukraine remain uncertain two years into the conflict.Developments in the
aviation market following settlements between lessors and Russian airlines have raised hopes
that market losses could fall towards the low-end of early expectations.Figure 22 shows
Ukraine war-related losses reported by individual(re)insurers since the outbreak of war. Most
carriers did not add to reserves in 2023.
28 Howden

Figure 22: Reported(re)insured losses for Ukraine war vs ultimate industry loss estimates
(Source: Howden,company reports)
IF
jor
Q4 2023 I
Q3
0 2 4 6 8 10 12 14 16 18 20
USD billion
Reported losses — Low-end industry loss expectations — High-end industry loss expectations
The prevalence of hot conflicts in Ukraine,the Middle East and Africa carry serious
ramifications for global security and the world order.In addition to the devastating human toll,
Figure 23 shows that geopolitical fragmentation has caused structural shifts in trade patterns
following Russia's invasion of Ukraine that bring the potential for significant changes to supply
chains,as well as increased inflation volatility.
All of which underscores the need for companies to secure supply chains and reduce reliance
on geopolitical hotspots.This process requires agility but also presents an opportunity for
innovation and growth.Whilst strategies like'friend-shoring'can incur additional time and
costs,they can also reduce pressure points and assist insurability at a time when geopolitical
forces are redrawing trade maps across the world.
Figure 23:Average change in bilateral trade by geopolitical group—1Q22 to 3Q23
(Source:UNCTAD based on national statistics)
6%
4%
2%
0%
-2%
-4%
-6%
1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23
-
Geopoliticallyclose* —Geopoliticallydistant* —Geopoliticallyverydistant*
*UN voting records used to determine geopolitical categories.Data excludes services and intra-EU trade.
2024:a turning point? 29

2024 elections
Economic uncertainty and an upsurge in armed conflict coincide with a slew of high-profile
elections this year.Some 60 countries,which account for approximately 40%of the world's
population and gross domestic product,are due to hold votes,with results not only impacting
domestic policies in each respective nation,but also set to shape the course of global
developments for years to come.
Figure 24:Share of world's population and GDP set to vote in 20245
(Source:Howden,Goldman Sachs,IMF)
Elections by population weight Elections by GDP weight
40% 40%
30% 30%
20% 20%
10% 10%
0% 0%
2010 2012 2014 2016 2018 2020 2022 2024 2023 2024
Parliamentary system � Presidential system Total%of global GDP for countries holding elections
Taiwan and Pakistan have already held elections,with the former likely to have important
ramifications on Taipei's(and the West's)future relations with China and the latter providing
an early example of the uncertainty(and tension)that can follow closely contested outcomes.
Polls in India,Mexico,South Africa,South Korea,the United States and United Kingdom are
due to follow later in the year.
Given the size of the economies involved and concerns that misinformation and disinformation
from internal and external parties could be used to undermine the democratic process,the
potential for political instability presents a major risk for 2024.
5 Countries classified as being'full democracy,'flawed democracy'and'hybrid regime'in the Economist
Intelligence Unit's Democracy Index 2023 report have been included in the analysis for global GDP.
30 Howden

The stakes are high.Grievances tied to the rising cost-of-living,food and energy insecurity,
falling real incomes,high levels of debt and perceived poor governance and corruption,
inflamed further by populism and polarisation,are eroding social cohesion.Population growth
in major cities is also playing a role as increased density of people and insured assets drive
losses higher.
Two countries holding elections this year,the United States and South Africa,experienced
damaging acts of violence in 2020 and 2021.Figure 25 charts how both these events,
alongside riots in France last year,contributed to episodes of unrest across G20 countries
from 2020.
Figure 25:Number of monthly riots in G20 countries—2020 to 2023
(Source:Howden,ACLED)
1,000
France
Jun-23
United States
Jun-20
800
South Africa
Jul-21
600
400
200
Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23 Dec-23
2024:a turning point? 31

Associated(inflation-adjusted)insured losses from civil unrest during this timef ram e
approached the 7 billion mark(see Figure 26),which is indicative of how the scale of events
and losses are now spiralling. Rather than a series of random acts,recent losses from
civil unrest are a manifestation of a highly challenged macro-environment,fuelled further
by the proliferation of technology and the reach provided by smartphones and social
media platforms.
Figure 26:Insured losses from civil unrest by 4-year period—2012 to 2023
(Source:Howden,NOVA)
s
6
m
5
c
0
0
c 4
c
0
0 3
U)
D
2
1
0
2012-15 2016-19 2020-23
With elections in 2024 set to introduce an additional dose of unpredictability into an already
volatile environment,businesses need to prepare for,and protect themselves against,
escalating political-related risks.Alongside civil unrest,the potential for major deviations in
policy,contract cancellation or even debt defaults can transform exposures overnight.
Such a backdrop not only brings direct financial risks from property damage and business
interruption,but can also threaten operations,personnel,supply chains and reputations.All of
which underscores the value of political violence and political risk insurance,where resilient
market capacity is supporting businesses to invest and tap into new growth opportunities.
32 Howden

L4
With elections set
to introduce an
additional dose of
unpredictability into
an already volatile
environment ,
businesses need
to prepare for,
and protect
themselves against ,
escalating political -
related risks .

isk bri* ngs
opportunity
The importance of (re)insurance comes to
the fore in such an uncertain and volatile
environment. No sector can rival the market's
expertise in understanding, measuring and
mitigating risk.
After five years of near-uniform hardening,market conditions in 2024 are more favourable
for buyers,with pricing stabilising and risk appetite on the rise. By stepping up at this time of
macroeconomic and geopolitical instability,insurance is enabling commerce worldwide that
allows ships to sail and businesses to invest.
34 Howden

Value of insurance
The socioeconomic benefits of(re)insurance are wide-ranging.In addition to carriers'position
as large,long-term investors in infrastructure projects and businesses,insurance is also a
facilitator of risk-taking by providing policyholders with the confidence that losses will be
recovered when the unexpected happens.
The close correlation between economic activity and insurance development(as shown by
Figure 27)paints a picture of an industry that has largely supported clients in adjusting to
change and,ultimately,stimulating growth and innovation.Insurance penetration rates have
ticked up since 2018 off the back of significant pricing tailwinds.
Figure 27:Nominal GDP vs direct written premium in advanced economies-1980 to 2022
(Source: Howden,World Bank,Swiss Re)
70 3.5
60 - — 3.0
50 2.5
40 2.0
0 0
U)
30 1.5
20 1.0
10 0.5
0 0.0
1980 1985 1990 1995 2000 2005 2010 2015 2020
Advanced economies GDP — Non-life direct written premium in advanced markets
I • point?

Risk brings opportunity
Remaining relevant
Finding new solutions to sustain market growth and close protection gaps will become
increasingly important as price momentum wanes.Although the global commercial insurance
market has grown significantly since 2017,rate hardening has driven much of this growth
(see Figure 28).
Figure 28:Global commercial premium growth vs global commercial insurance pricing—
2017 to 2023 (Source:Howden)
180
160
140
120
100
80
2017 2018 2019 2020 2021 2022 2023
Global commercial insurance premium — Global commercial insurance pricing
The shift in growth impetus from price to exposure as the market cycle transitions requires
creative thinking around new products(and appetite)for under-insured risks like supply chains
and non-damage business interruption.Utilising advances in data and analytics to develop
new applications of traditional protection and continued innovation(such as parametric
insurance)will be key to filling long-discussed protection gaps.Arresting the trend of self-
insurance and higher retentions is the route to long-term relevance,and new possibilities.
The risk transfer sector is in a strong position to deliver.Capital positions are robust,and even
after the effects of inflation,(re)insurers recorded stellar profitability last year.Long-term
prospects are equally positive,as investment income will continue to benefit from higher
reinvestment yields and underwriting performance is sustained by strong market conditions.
Howden is closely monitoring global developments and stands ready to support clients
through this highly fluid period.Thoughtful risk management solutions and differentiated
advice can make all the difference in this market and we are actively working with clients and
carriers to ensure coverage is available to meet businesses'rapidly changing needs.
36 Howden

Finding new
solutions to
sustain market
growth and close
protection gaps
w ill become
increasingly
important as price
momentum wanes .

2024:a turning point?
Meet ta experts
Julian Alovisi
{ ' Head of Research
[phone]
[e-mail]
Peter Evans
Research Director
�� � [phone]
[e-mail]
Sandy Warne
Managing Director, Howden Tiger Facultative
[phone]
[e-mail]
Matt Strong
Managing Director, Credit & Political Risks
I rni-
1 [phone]
[e-mail]
Daniel Whiteside
Managing Director, Marine, Cargo & Logistics
[phone]
[e-mail]
38 Howden

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