Reinsurance giant Swiss Re has been expanding its natural catastrophe risk underwriting in recent months, but along with this has ceded roughly 4% more of its catastrophe risk exposure to sources of retrocession, compared to the prior year.
Recently we explained that Swiss Re has been embracing the capital markets more, at the end of 2018 and over the first-half of this year, resulting in an increased use of third-party capital as retrocession and capacity support for its natural catastrophe book.
The company said at its recent results that it had made a “significantly increased use of third party capital to back nat cat growth.”
With reinsurance rates generally seen to be on the rise in peak catastrophe zones, after two years of heavier losses, Swiss Re and other major players have been increasing the size of their books.
But alongside growth in nat cat underwriting, reinsurance firms have also been taking advantage of retrocession and third-party capital, to assist in managing their growing catastrophe exposures.
These cessions, of cat risk to the capital markets and to other traditional sources of retrocession, have increased at Swiss Re, but it turns out they have increased at a faster rate than the risks being underwritten.
We can reveal that Swiss Re has actually ceded an increased proportion of its catastrophe book in 2019 so far, not just more risk due to growth of the underwriting book.
Swiss Re told us that as of April 2019 it had increased the retrocessional protection of its gross exposure to natural catastrophe risks from 12% to 16% of the book, a 4% rise in the percentage ceded year-on-year.
The reinsurer also told us that its retrocession program was further increased after April.
We imagine the increased use of retrocession has continued in support of further expansion of its natural catastrophe book at the June and July renewals as well.
Swiss Re had said that its Group natural catastrophe risk exposure increased by around 30% in 2019, across the core perils of U.S. and Atlantic hurricane, California earthquakes, European windstorm risk and Japanese quake.
For tropical cyclone and hurricane risks in the North Atlantic alone, Swiss Re said that its growth back into property catastrophe markets this year has helped to increase the value at risk it holds, after retrocession, by almost 40%.
While California earthquake exposure is up almost 52%, Japanese earthquake up 7% and European windstorm up 9% at the reinsurer.
Swiss Re said its capital deployed into the property and casualty reinsurance business had significantly increased to help it take advantage of better renewal conditions in 2019.
Resulting in natural catastrophe risk exposure at Swiss Re rising back to 2015 levels, thanks to natural catastrophe reinsurance premiums written growing by 17% overall in the first-half of this year.
Third-party capital and other sources of retrocession have helped Swiss Re manage and control its exposure as it grew back into natural catastrophe risk in 2019.
So it’s no surprise, given the growth figures cited above, that the percentage of the nat cat book ceded to retro has increased as well.