NU asked several execs at several major reinsurers: What do youconsider the greatest challenges to the reinsurance business as2014 approaches, and conversely, where do you feel its greatestopportunities lie?

Amer Ahmed, CEO, Allianz Re

In my view, one of the biggest concerns for the industry—notonly for 2014 but for the foreseeable future—is the increasingimpact of natural catastrophes. Economic and insured losses arerising due to increasing value concentrations and rising insurancepenetration, as well as due to an observed increase in number ofweather related cat events. In fact, there is a significant gapbetween economic and insured losses which raise the question of ifinsurers should be doing more to take the strain of such events forsociety and the economy.

A major challenge, and opportunity, for the industry is to findways to keep such events insurable at an affordable price forclients. This requires improving the awareness of the risks,assessing potential future scenarios where loss patterns may bedifferent, developing products and coverage to encourage the rightbehaviors toward risk management and mitigation and engaging withpolicymakers—for example, on development planning in flood-exposedareas.

To maintain insurability, two key principles must be maintained:The first is that insurers must be able to assess the likelihood ofa loss and its potential cost. The second is that insurers must beable to charge a risk-adequate premium for each risk. If this isnot the case and there are systematic cross-subsidies or inadequatepricing, then the insurance system will not be sustainable.

Specifically for the short term there is a lot of discussionabout alternative capital and the impact this will have on pricingand the reinsurance business in general. At Allianz we use a rangeof instruments, from traditional reinsurance through cat bonds andcat swaps, to manage our catastrophe risk landscape. Having accessto capacity from different sources, with different durations forexample, provides us with options to optimize our protections. So Isee an opportunity for traditional players to work with thesealternative capital providers and expand the scope of risks wecover, improve capital efficiency and further improve ourresilience.

Ulrich Wallin, CEO, Hannover Re

The greatest challenges are the continued low interest rateenvironment together with the increasing competition for non-lifereinsurance business. The greatest opportunities lie in the growthpotential in the emerging markets and in partnering with insurersin developing new innovative business opportunities.

William Donnell, President, U.S. Property & Casualty,Swiss Re

Challenges and opportunity usually go hand in hand, so I'm notsure it's always easy to separate one from the other.

For example, TRIA is set to expire in 2014, which would be ablow not only to the insurance and reinsurance industry but also tobusiness as well as the average U.S. citizen, who will feel thebrunt of it in the form of increased taxes. Swiss Re has beenpublicly advocating support for a continued government backstopbecause unlike most natural catastrophes, major acts of terrorismremain uninsurable by private markets. Terrorism cannot be modeledwith accuracy because terrorists are unpredictable. Terroristsactively work against being detected so they can inflict as muchdamage as possible.

The same isn't true for natural disasters, and the U.S.insurance industry simply isn't large enough to take on this scaleof risk and put in jeopardy all the other good work that it does inhelping people recover during hard times. Public/privatecooperation through a government backstop can ensure people in thiscountry remain protected.

While expiration of TRIA is a short-term risk, now is also thetime to start taking action on longer-term risks as well. OurAmericas CEO Eric Smith said this year that climate change is oneof the biggest long-term threats to our industry, and he is right.Over the past several decades we have seen natural catastrophelosses roughly double every 10 years, and this is clearlyunsustainable. Climate change is causing the ocean levels to rise,and during Hurricane Sandy this meant that storm surge was worsethan it would have been 50 years ago. Furthermore, as part of ourwork with Mayor Bloomberg's administration we have identified thata future storm similar in strength to Sandy would cause severaltimes more damage than Sandy did as water levels would be higherstill. This is a threat not only to the industry but to peopleacross the country.

But with almost every threat comes an opportunity. The insuranceindustry, with the data it has at its fingertips, and with itsability to evaluate and price risk, is the ideal sector to workwith governments to develop new innovative ways to manage thefinancial impact of severe weather events as well as increase theirresilience to them. As an industry we cannot prevent Mother Naturefrom taking its course, but we can improve how we stand up to andrecover from it.