Swiss Re Insurance-Linked Fund Management

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Bottom of the soft market is very close, or already here: Swiss Re CUO


The reinsurance market has been in a softening phase for quite some time now, driving discussions about the bottom of the current cycle. And according to Swiss Re’s Matthias Weber, the bottom is either very near, or it’s already here.

Prices in the global reinsurance market have been deteriorating for several years, as an abundance of capital; benign loss experience, low interest rates and other headwinds continue to test the resolve of reinsurers of all sizes.

At the same time, during the last 18 months price erosion has been seen to shrink in size, and reinsurance giant Swiss Re expects this trend to continue, and expects “price erosions to stop in the near future,” said Matthias Weber, Group Chief Underwriting Officer (CUO) at Swiss Re.

“So we believe we are close to the bottom of this market cycle, and maybe we have reached it already, we don’t know for sure,” said Weber, speaking to an audience at the 2016 Monte Carlo Reinsurance Rendezvous.

Unlike previous soft cycles the current environment has seen a large inflow of alternative capital enter the space, driving up competition and intensifying pricing pressures, especially in the property catastrophe space. At the same time, the loss experience has been relatively benign, and despite more normalised levels witnessed in the first six months of 2016, this has also exacerbated the softening landscape.

So it’s understandable that Weber, like other industry executives and observers, remains unsure when the softening will end, although he does appear confident that it will be sometime soon.

Nearing the bottom of the softening cycle is “true for nat cat, but it’s also true for liability,” said Weber. Adding that Swiss Re believes “it’s just a matter of time before this happens. It has already happened in some markets and some segments,” he continued.

“And in those markets, the insurance and reinsurance rates have started to harden already, and we believe this trend will continue. So the bottom of the soft market is either very near, or it’s already here,” said Weber.

Exactly what markets and segments the hardening has already occurred in Weber failed to note, but there have been widespread reports of a slowdown in reinsurance price declines in recent quarters and renewals, a trend some predict to continue.

With reserves reportedly running thin and reinsurers’ ROEs falling near cost-of-capital levels, even during a period with relatively benign losses, reinsurers will be hoping that a turn in the market happens sooner rather than later.

However, and as stressed by Weber, when this is actually going to happen remains unclear, and in a year’s time the market could be saying the thing, that the bottom of the cycle is near and prices can’t fall any lower.

One thing remains clear, efficiency and discipline will remain of the utmost importance in the current environment, as when losses start to normalise while reserves are thinning it will likely be even more challenging for companies to navigate the softening landscape.

Read all of Artemis’ Monte Carlo Rendez-vous coverage here.

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