Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Renewals to see significant additional cat capacity demand: Swiss Re’s Reichelt


The upcoming reinsurance renewals in Europe at January 1st are expected to see cedents demanding an additional up to €2.5 billion of catastrophe capacity to cover their risks in Germany alone, according to Frank Reichelt, Head Northern, Central & Eastern Europe at Swiss Re.

swiss-re-logo-buildingTwo of the key drivers of this are inflation, as cedents valuations of their risk are increasing rapidly, but also the costs of retrocession and availability of retro capital, which reinsurers have relied on to help them write more business and manage their own risks.

Alongside this, increasing loss trends in secondary perils are cited as another key factor, that is likely to influence the key January reinsurance renewals for European business.

Swiss Re’s senior executives in Europe were speaking this morning during a press briefing in advance of the Baden Baden reinsurance conference.

Frank Reichelt, Head Northern, Central & Eastern Europe at Swiss Re explained what he sees as key topics for the Baden Baden reinsurance meetings this year, saying, “We see significant increase in demand for risk protection in the current uncertain times, across all our businesses and in all regions. As inflation flows through the clients exposure valuation, we expect to see significant new demand for capacity.

“At the same time, we see capacity is decreasing in some areas, as many players are reducing their appetite, in particular in the nat cat businesses, which will likely have an impact on prices.”

Highlighting one specific concern Swiss Re has, Reichelt noted that retention levels and attachment points will be a key focus for the reinsurer at the next renewal rounds.

“During recent years, client retention has not kept up with loss inflation,” he explained. “This needs to be addressed to ensure that reinsurance addresses real volatility and isn’t just absorbing risk trends.

“So the structure of reinsurance covers need to evolve with inflation and the retentions of insurers will need to go up. One area that illustrates these dynamics very clearly is the nat cat situation in Europe.”

“Most of our clients are considering buying additional nat cat capacity for next year,” Reichelt explained during the briefing.

Explaining the drivers of increased demand, Reichelt said, “This is driven on the one hand by inflation, on the other hand, also the loss experience and an improved understanding of secondary perils is driving that. And last but not least, Solvency 2 considerations are still here and play a role as well.”

He went on to explain, “If we look at Germany, from our recent discussions with a lot of clients in this market, we have noted plans to buy about €2 billion to €2.5 billion more cover for nat cat for 2023.”

However, for Swiss Re specifically, Reichelt explained that the company is not looking to grow its own exposure to European catastrophe risks, but will grow in a balanced way, if prices, terms and conditions all allow at the renewals.

“We will not grow our nat cat independently from other lines,” Reichelt said, adding that he expects Swiss Re will experience “good growth across all lines,” at the January 2023 renewal season.

Colleague Beat Kramer Mölbert, Head Property Underwriting EMEA at Swiss Re, then discussed some other factors playing into renewal expectations for the reinsurance company.

Mölbert highlighted that, “Coming to retro, many reinsurers protect themselves against natural catastrophes with what we call retro. Now after several years of bad results, we expect that retro capacity will shrink for 2023.

“Therefore, having less cover themselves, we believe that reinsurers will likely be able to less cover to their insurance clients and this in an inflationary environment where our insurance clients will buy more coverage.

“This will lead to increased price levels for reinsurance.”

Nikhil da Victoria Lobo, Head Western & Southern Europe at Swiss Re, explained that the catastrophe risk pull-back by some smaller competitors will exacerbate the expected reinsurance rate hardening at 1/1, especially for natural catastrophe risks.

He commented, “While we see significant new reinsurance capacity demand, we’re also seeing mid-size and small reinsurers stepping out of the market and reducing capacity, or even just keeping it stable.

“In other words, increasing demand is being met at the same time with shrinking supply.

“Inevitably, this will mean that rates will harden as it has been for the last number of years. But in parallel, it’s been pointed out, client retentions are also going to go up with the significant higher rates, because we have also seen increased exposures and increased frequency of events.”

da Victoria Lobo further explained on retentions, “Clients have not seen their retentions change over many years. This is no longer sustainable, because with increasing frequency and severity we are going to have to see a change in the retention to reflect the climate reality.”

Going into more detail on client retentions and how Swiss Re is set to demand higher attachments at renewals from many, Mölbert said, “We would say the retentions at least need to go up with the relevant inflation index, that could be consumer price but it could for example, also be construction Price Index, right for example, which in Germany is even well into the double digits.

“Then the second point is secondary perils loss trends. In my thinking, secondary perils and the increasing loss trend has a very similar impact on whether retentions need to be actually like the inflation, but the two topics actually complement each other.

“So if a cover should stay at the same attachment probability, it needs to go up with inflation and then probably some more for the increasing loss trends of secondary perils.

“Many of the retentions have stayed where they are for a very long time. We should also look back maybe 10 years to where they were and think about, even if inflation was smaller, where should they really be in 2022.

“All these three issues taken together will lead to quite substantial increases in retention points for our clients, although we look at this client by client, as it’s not the same for everybody.”

So it’s clear Swiss Re is anticipating considerable rate hardening for European property catastrophe reinsurance risks at the January 2023 renewals, with changes expected to attachments, retentions and terms as well.

With up to €2.5 billion of additional catastrophe reinsurance capacity demand expected from Germany alone, it suggests a strong market for nat cat risks at 1/1, with an opportunity for those with capital available to deploy and long-term partnerships in the European markets.

Register today for ILS NYC 2023, our next insurance-linked securities (ILS) market conference. Held in New York City, February 10th, 2023.

Artemis London 2022 - Insurance-linked securities conference in London

Get a ticket soon to ensure you can attend. Secure your place at the event here!

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.