Swiss Re Insurance-Linked Fund Management

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Swiss Re’s appetite propelled by “significant rate hardening” in catastrophe risks


In announcing its first-half results this summer, global reinsurance giant Swiss Re explained that it is experiencing and taking advantage of “significant rate hardening” across natural catastrophe exposed business lines.

Reinsurance rate risesThe company has been displaying an increasing appetite for natural catastrophe risks in recent years, leading to the increasing use of third-party capital and instruments such as catastrophe bonds or quota share sidecars to support steady growth into property catastrophe risk peak zones.

Swiss Re reported strong outcomes for all renewals so far this year for its P&C Reinsurance division, allowing the company to grow its portfolio by roughly 6% in terms of volumes and also 6% in terms of nominal price change.

Exposure is only up by a comparable 6%, the reinsurance company explained, which has likely been assisted by its increasing use of third-party capital and how this is helping Swiss Re manage its PML’s at a time of catastrophe exposure growth.

Growth in P&C Reinsurance has been largely seen in short-tailed lines, Swiss Re explained, with nat cat a particular area of growth this year.

At the most recent July reinsurance renewals, Swiss Re revealed 6% volume growth as well as “significant rate hardening in natural catastrophe business.”

Focusing on natural catastrophe reinsurance underwriting, Swiss Re said that its premiums are up 14% year-to-date, with positive pricing outcomes.

To achieve this 14% premium growth in nat cat reinsurance business Swiss Re said its economic capital deployed rose by 12%, with the difference perhaps a sign of the leverage that alternative capital provides.

“P&C Re achieved profitable premium growth and strong renewals in improving market conditions,” the reinsurer said.

“Net premiums earned increased strongly by 10% to USD 9.6 billion, due to large transactions and growth in natural catastrophe business, driven by successful renewals in the US and Asia.”

However, Swiss Re also seems to expect further firming of rates, as “price quality” has not moved as much as desired across the reinsurance book.

“Overall price quality was unchanged, reflecting the need to compensate further decreased interest rates and material adjustments to loss assumptions,” the company explained.

Speaking during the firms earnings call, executives said that this momentum remains and there is currently no talk in the market of rates going down.

The company also hopes to benefit with further upside from proportional deals with its clients going forwards.

As we explained recently, Swiss Re expects to further increase its use of alternative capital as it continues to expand its catastrophe reinsurance book globally, with key relationships such as with sidecar and catastrophe bond investors likely to be the avenues through which it brings additional third-party capital into its business.

Swiss Re’s third-party capital assets under management reached around $2.5 billion this year, representing significant growth as the reinsurer has doubled-down on growing its property catastrophe book.

Given the hardening of reinsurance rates, particularly in catastrophe exposed property risks, we should expect this trend to continue and it’s likely we’ll see additional use of the Matterhorn Re catastrophe bond vehicle, as well as the firms reinsurance sidecar over the coming months.

Swiss Re’s CEO Christian Mumenthaler discussed the reinsurers’ appetite for catastrophe risks in a recent video interview with us.

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