Swiss Re Insurance-Linked Fund Management

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Capacity alone not a sustainable reinsurance business model: Swiss Re CEO


Michel Liès, Group CEO of global reinsurance firm Swiss Re, said at an event yesterday that while the current re/insurance market environment provides challenges and opportunities, those reinsurers offering capacity alone could be in trouble.

Speaking at the A.M. Best market update event held in London, Michel Liès discussed the challenges that reinsurers face as well as the opportunities that he and his firm see for growth and to increase relevance in a market facing structural changes.

Relevance was a key theme for Liès, as it has been throughout 2014 as reinsurers have been told they must remain relevant and innovate or risk perishing in the face of the market’s challenges.

Liès said that the market is very difficult to navigate as the challenges and opportunities that are posed are not the same for everyone. How companies are affected depends on their size, depth of expertise, quality of capital, where in the market they play and what lines of business they operate in.

Liès highlighted increasing its relevance as a key goal for Swiss Re. He said that the reinsurance industry is currently not relevant enough, at least not to the areas where it is most important which is ensuring the sustainable economic and political development of the planet.

Liès said that he believes there is an “Infinite potential of relevance” and that he remains optimistic that by striving to increase relevancy Swiss Re can achieve further growth.

“The time of one size fits all is over,” said Liès, adding that reinsurers need to be able to differentiate themselves as more than just simple capacity providers in order to remain, or to become, relevant. The industry is not currently relevant enough, Liès explained, highlighting the gap between insured and uninsured natural disaster losses and the likely future growth of demand for catastrophe reinsurance as opportunities to increase relevance for reinsurers.

Liès said that these are issues that the reinsurance industry needs to and should address. Liès said he is “deeply convinced” that a key issue for our industry is to find a bridge to cover uninsured risks and he would prefer that the industry focused on this rather than being too afraid of, or defensively discussing, alternative capital.

On the subject of alternative reinsurance capital, Liès said that it might represent a challenge to some in the industry but he felt not to the most important reinsurers like Swiss Re. He said the market should not be too afraid of capital wanting to be connected to risk, which perhaps suggests that the reinsurer remains ready to leverage alternative capital again, as it once suggested was the future for the sector, when the market expands and its own capacity is perhaps insufficient anymore.

The currently challenging reinsurance market environment poses the greatest threat to smaller, following reinsurers Liès explained. Where providing capacity is more important than providing services there is more risk for reinsurers and some players will need to complement their offering with something more than pure capacity alone.

Liès clearly wants to position Swiss Re as much more than just a source of reinsurance capacity and here the large, global reinsurers really do have an edge, in terms of their depth of expertise, analytical experience, deep relationships and client servicing.

Those reinsurers with more narrow or monoline focus, or who tend to follow rather than lead on signings, are likely the most at risk of being seen as just capacity providers. As ever this is where the threat from current reinsurance market competitive trends and the growing insurance-linked securities (ILS) and alternative reinsurance capital market will be felt the most.

However, if providing capacity alone is not a sustainable reinsurance business model, what if that capacity is cheaper than a reinsurer like Swiss Re can provide and as good or higher quality as it is fully collateralized? How does that affect the relevance of the Swiss Re’s of the world and would it mean that they had to leverage this capacity alongside their own expertise and client servicing in order to create a sustainable reinsurance business model?

If there are cheaper and just as (or more) secure sources of capacity available, wouldn’t reinsurers like Swiss Re be doing a disservice to their clients by not using them?

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