Change in the reinsurance industry is accelerating, with scale, efficiency, and risk knowledge becoming more important, Swiss Re has found.
Swiss Re said that it expects further rate increases for loss-affected and underperforming businesses and broadly stable rates in other areas, amid continued capital abundance in the reinsurance market. In Swiss Re's view, to ensure a long-term sustainable reinsurance market, further rate increases are needed.
Swiss Re's chief executive officer for reinsurance, Moses Ojeisekhoba, said, "The industry is changing for a variety of reasons. We are confident that, with our continued focus on the needs of our clients, the scale and diversification of our business, and our risk knowledge and R&D capabilities, we are in the right strategic position to address change proactively."
Swiss Re said that it achieved profitable growth in its reinsurance business in the first half of 2019, underpinned by a strong increase in property and casualty treaty premium volume and price quality improvement across a broad-based portfolio. The natural catastrophe business has been one of the main drivers of P&C growth for Swiss Re this year. Large transactions, where Swiss Re combines its expertise and reliable balance sheet to meet client-specific capital management needs, have been another growth area.
Edouard Schmid, chair of the Swiss Re Institute and group chief underwriting officer, said, "The recent experience of hardening rates in reinsurance mainly reflects the response to higher loss occurrences and adverse trends in natural catastrophe markets and other affected segments. Our deep knowledge, experience, and diversification make Swiss Re a strong partner for our clients in underwriting natural catastrophe risks while generating attractive returns on capital."
The abundance of capital in the reinsurance market has impacted the entire reinsurance value chain, increased cost sensitivity, and is requiring reinsurers to find new ways of creating value for primary insurers, according to Swiss Re.
It also observed that the industry is facing increasingly complex risks and a rapidly growing wealth of data. Some risks, such as secondary perils (e.g., wildfires, droughts, and floods) or cyber risks, are evolving and require new approaches, also to risk modelling.
Increasing liability insurance costs in the United States are another emerging issue as reinsurers have to find a way to model and price the impact of social inflation. At the same time, it is a challenge for primary insurers to use the wealth of data available as this requires profound know-how, specific skill sets, and the right resources, according to Swiss Re.
The reinsurance industry is not only confronted with a changing risk landscape, but also with growing exposures as the world's population increases, people live longer and accumulate more assets, especially in areas prone to natural disaster. Swiss Re Institute estimated that the combined protection gap for the main risk areas – natural catastrophe, mortality, and healthcare spending – reached a record high of US$1.2 trillion in 2018.
According to Swiss Re, the reinsurance industry needs to rethink access to affordable, relevant, and effective risk management and insurance safety nets. Reinsurers have a crucial role to play in supporting clients along the entire value chain from innovation design to claims optimization, Swiss Re continued. As an example, it noted that parametric solutions can provide end-to-end pricing, policy administration, and automated claim pay-outs for natural catastrophe events. This helps clients increase insurance penetration in previously underserved markets in an efficient way and provides swift economic relief to policyholders.
Mr. Ojeisekhoba said, "As a risk knowledge company that leverages technology and embraces innovation, Swiss Re will fully leverage its capabilities to support its clients in this rapidly changing environment. We see good opportunities as we partner with our clients to meet the growing need for insurance protection. These partnerships are key, as in the end, we're only as successful as the partnerships we have built."
Victoria Spears
Victoria Prussen Spears is senior vice president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. A graduate of Sarah Lawrence College and Brooklyn Law School, Ms. Spears was an attorney at a leading New York City law firm before joining Meyerowitz Communications. She may be contacted at [email protected].