Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Opportunities for exposure growth in emerging markets: Swiss Re


Reinsurance giant Swiss Re highlights the potential for exposure development in high growth markets driven by fiscal austerity in 2016, signalling an opportunity for reinsurance and insurance-linked securities (ILS) markets after continued softening in property and specialty lines at the key January renewals.

The global reinsurance company posted its 2015 financial results recently, reporting a net income for the year of $4.6 billion, and a $3 billion net income within its Property & Casualty Reinsurance division.

And like many of its peers and other market analysts, Swiss Re noted “continued general price softening in property and specialty lines of business” at January renewals 2016, but did stress that the “important U.S. natural catastrophe market” has witnessed a slowing of the softening trend, supporting evidence it’s “approaching an inflection point.”

This, along with the persistent, albeit reduced entry of alternative, or third-party reinsurance capital into the global reinsurance space has been a common observation among market participants from the end of 2015 and into the current year.

With many expecting a continuation of last year to be the trend of 2016.

Capacity remains plentiful and competition intense, and without a significant cat event or a substantial aggregation of smaller events, it’s hard to see the softening trend begin to reverse anytime soon, while wider financial market volatility ensures profits are increasingly harder to come by for some on both sides of the balance sheet.

However, Swiss Re stresses that opportunities are out there, for a range of solutions across emerging, high growth markets increasingly aware of and in need of affordable, adequate protection.

“In high growth markets, and especially in Asia, we expect to see strong exposure growth for both life and non-life insurance, further accelerated by urbanisation and increasing insurance penetration among the growing middle classes,” says Swiss Re.

Further explaining “fiscal austerity is expected to drive risks from the public to the private sector, creating opportunities in infrastructure, pensions, healthcare and natural catastrophes. More immediate opportunities exist in other areas with insurance protection gaps.”

Re/insurers, and ILS players are increasingly looking for ways to enter new markets and access new risks, to diversify their business mix but also, increasingly, as a means of generating the kind of returns they were perhaps more used to in previous years that weren’t so defined by a benign loss environment and over-supply of capital.

Emerging markets like Asia are experiencing rapid urbanisation to cities and coastal regions, in line with a growing middle class and rising asset values, migration to hazard-prone areas become ever more significant when insurance penetration levels remain low.

During 2016 Swiss Re says it will “also focus on areas where protection gaps threaten resilience.”

A number of global insurers and reinsurers have voiced a commitment to regions such as this in recent times, following a global effort to reduce the threat of climate change and build global resilience and sustainability in the face of natural disasters.

But as well as providing the residents of vulnerable areas with insurance protection, it opens up a host of opportunities for global players to access new perils and regions, at times where the mature, or more developed markets provide little or no organic expansion avenues.

For the emerging economies, the capacity, knowledge and skill set offered in both the re/insurance and ILS space enables the refinancing to commence faster, and with certainty of available funds post-event.

Whereas currently the burden is borne by the public sector, which can wipe out or seriously diminish a country’s economic stance and take years to get back to a position of financial and economic stability.

Innovation will be required if the reinsurance and ILS sector is to meaningfully enter and influence high growth, emerging markets, with the ultimate goal to be increasing penetration levels and improving the resilience of countries around the globe.

With pressures set to continue and profits remaining reduced across the most developed business lines in the global reinsurance landscape, market participants stand to benefit from creating bespoke, innovative solutions in areas with little or no coverage, and that are in the most need of it.

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