Christian Mumenthaler, the CEO of Swiss Re believes that the reinsurance market will continue to harden significantly, as so far the price gains made by the industry have been largely eaten up by issues elsewhere that affect the reinsurance balance-sheet.
Mumenthaler joined us for a new Artemis Live video interview just before the Monte Carlo Rendez-vous 2022.
We discussed the current state of the reinsurance market, his expectations for year-end renewals, how his firm Swiss Re is managing global challenges, and the importance of alternative capital and insurance-linked securities (ILS) activities at the company.
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Mumenthaler explained the Swiss Re view on global reinsurance market conditions and rate adequacy in the sector at this time.
“You have probably seen the results of all the reinsurers, some significant price increases were achieved, but vice versa, inflation has eaten up a lot of that,” he explained.
Adding that, “I would say the combination of inflation and adapted models, in particular on the nat cat side, but also in other places, has sort of neutralised these price increases, by and large, when you look across.”
Going into more detail on reinsurance pricing at this stage of the year, Mumenthaler said, “So, in our own case, it’s plus 6%, but also plus 6% in expected loss and the reason we have one point better in the combined ratio, is only because we had some portfolio shifts which led to that.
“Then obviously you have some benefit from the higher interest rates, so that from an economic point of view plays a role.
“But fundamentally, all the increases are being eaten up by real live issues.”
Mumenthaler said that there is a need to get beyond this just breaking even on rate and with global macro-challenges accelerating, it seems flat rates just won’t be good enough for the reinsurance industry this year.
“For many years now, the reinsurers have really done their job and insulated primary insurers from huge shocks over several years. But, of course, over time, reinsurers also need to earn their cost of capital,” he told Artemis
“So, there’s a very, very strong need to come back to a profitable territory and get to a sustainable level over time, including the bad years,” Mumenthaler explained.
Going on to say that the backdrop as the negotiations for end-of-year renewals begin, is a particularly challenging one in 2022.
At this time of year, all thoughts in reinsurance turn towards the series of meetings with cedents and brokers, that traditionally begin around the Monte Carlo event.
Mumenthaler is expecting demand to rise, while there are also shifts in reinsurer appetite occurring, which against a “really challenging backdrop” could make the renewal negotiations more difficult, it seems.
The Swiss Re CEO said, “We’re going to see insurers fundamentally buying the same or more, because of inflationary pressures, or just the value going up and needing to buy more, plus reinsurance has really worked well in the last few years.
“And on the reinsurance side, you could see that certain players are retreating somewhat from the nat cat markets.
“So, I would definitely expect hardening to continue in a significant way.”
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