Swiss Re Insurance-Linked Fund Management

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Swiss Re expects hardening at renewals, positive reinsurance growth trends


Global reinsurance giant Swiss Re is forecasting more rate hardening across all lines of business at the upcoming renewal season, while also expecting positive market growth at the same time with increasing demand.

swiss-re-building-imageAt the same time, the reinsurer explained this morning that it expects there to be increased pressure on the underwriting side of the business to deliver profits, making discipline and issues around wordings or terms and conditions key.

Swiss Re shared its view on the upcoming reinsurance renewals today, despite the cancellation of this year’s Monte Carlo Rendez-vous de Septembre event.

Rates have been seen to improve across many markets and lines of business already, the reinsurer noted, but this is expected to continue as underwriting has not moved back to a sustainable level of profitability yet.

A combination of trends are driving rates and prices, such as the continued lower interest rate environment, as well as the need for pricing to cover loss trends as demonstrated by recent experience around the world.

Major catastrophes such as hurricanes are driving increasingly large losses, the reinsurer noted, while at the same time so-called secondary perils continue to drive increasing impacts to the insurance and reinsurance market.

Add to this the influence of the COVID-19 pandemic, with the losses it has driven as well as the move towards an even lower for longer interest rate world and it puts increasing emphasis on reinsurers underwriting as the source of their profits going forwards.

In fact, Swiss Re’s Institute said that for a reasonable return on equity to be earned through 2021, non-life insurers in G7 markets must improve their underwriting margins by as much as 7-12 percentage points, to compensate for the impact of lower interest rates.

Chief Executive Officer of Reinsurance at Swiss Re Moses Ojeisekhoba commented, “Even before the COVID-19 crisis, most major markets were operating at below-average profitability. To be able to address the growing need for insurance protection in a sustainable way, further price increases across all lines of business are clearly needed.“

Swiss Re highlights underwriting fundamentals as key going forwards, including rate adequacy, risk selection and costing, portfolio steering, appropriate terms and conditions, and contract wordings, all of which the company expects will be critical to writing future business.

In addition, the use of advanced technology will be key to enable companies to meet their shareholders return expectations.

Swiss Re’s Group Chief Underwriting Officer Thierry Léger explained, ”At Swiss Re, we have accelerated digitisation and the use of more and better data sources across the entire underwriting process. With these capabilities and the risk insights from Swiss Re Institute, we can improve our own decision-making and effectively support our clients in their underwriting.”

Alongside the expectation for an ongoing need for more rate in reinsurance, Swiss Re also expects the market will grow and demand for its products rise.

The non-life insurance market will expand, driven primarily by exposure growth, the company said today, with its Institute forecasting a global growth rate of 3.3% in real terms for 2021.

Also set to increase demand are the awareness of risk, which the company says has been triggered by COVID-19, as companies and other entities are now far more cognisant of the danger of being uninsured, on top of the increasing frequency of weather-related events.

Ojeisekhoba said, ”In these unprecedented times it’s more important than ever to support our clients with risk knowledge, capital strength and tailored solutions. In the end, it’s about tackling protection gaps together to make the world more resilient.”

So, higher pricing, a positive growth outlook and greater risk awareness around the world, all of which should add up to positive trends, in terms of growth and return on underwriting as long as discipline is adhered to.

But the issues around increasing risk levels, in terms of impacts and frequency, alongside lower for longer interest rates, really do make the need for underwriting expertise, use of technology and the importance of terms and conditions vital going forwards, as reinsurers will not have anything to fall-back on when their underwriting processes go astray.

Speaking this morning Thierry Leger, CUO explained, “We see a need for strong price increases to get back to underwriting profits.”

Also read:

Swiss Re holds onto reinsurance top-spot, driven by non-life expansion.

Swiss Re’s alternative capital assets managed near $2.5bn: Rüede.

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