‘This was no miracle’: Berger on the Swiss Re CorSo turnaround
The CEO of Swiss Re Corporate Solutions Andreas Berger has expressed strident confidence in the success of the turnaround of the company, and said it is well positioned not to repeat the mistakes of the past.
In a candid interview with Insurance Insider, the executive opened up about the management failures that led to the prior poor performance of Swiss Re’s insurance unit, and detailed how the carrier was pivoting towards becoming a primary writer operating in the less commoditised international programme space.
Berger’s comments come as the previously heavily loss-making business unit begins to reap the rewards of a turnaround strategy which has seen a total transformation of its risk appetite, including cutting $900mn of business and exiting a string of classes.
In the first half of this year, CorSo recorded a net profit of $262mn, compared to a loss of $312mn in the prior-year period.
The business unit is now back in growth mode, having upped GWP by 13% to $3.67bn in the first half of this year.
“There is not really a miracle,” said Berger, explaining that the carrier had implemented rigorous discipline, focus, and a commitment to follow through on its targets.
He added that he felt “very confident” that the turnaround was complete, with the business unit on track to produce consistent profits, and supporting prudent growth.
“Make sure you are not repeating the mistakes of the past,” he said. “Read the trends, bring them into the costing tools and don’t grow just for the sake of growing. Rate needs to be adequate and that discipline we need to keep and maintain.”
Key to the approach, Berger explained, was to a pivot from writing on an excess and follow basis to being a primary player.
“To be relevant you need to exit the excess and follow positions,” he said. “You need to get closer to the client.”
He said that as a primary writer on international programmes, brokers need the insurer’s expertise, modelling capabilities and data to address the needs of their clients.
“Before we were competing with the whole wholesale market – now it’s with a smaller number of competitors,” he said.
Berger described the market CorSo now increasingly focuses on as “small, almost oligopolistic”, and said that it created scope for delivering an increasingly differentiated offering to competitors.
By operating in this space – and targeting the largest 40,000 corporate clients – the executive stressed that CorSo could develop client relationships that would take it beyond the “pure trading environment” where it was previously operating.
The CEO stressed that CorSo was focused on leveraging the data and technology capabilities of the broader group to deliver actionable insights to clients rather than merely providing capacity.
The distribution strategy has also tilted more heavily in favour of retail brokers, with the portfolio now 55% retail and a further migration in that direction expected.
Past organisational failings
The CEO was brought into the business at the beginning of 2019 from Allianz Global Corporate & Specialty (AGCS), and set about transforming the company’s profile, with what Berger described as a “drastic turnaround”.
Losses at the business had been persistent, coming in at a $403mn deficit in the first half of 2019, when the turnaround plans for the business were fully laid out.
The carrier would slash gross written premiums by 20%, withdrawing from underperforming lines such as US excess and surplus casualty, and extensively review every line of business.
Some of these areas, like the E&S casualty book, were challenged on both loss ratio and expense ratio, and others – including general aviation and marine cargo – were dropped largely due to unsustainable expense loads.
The business has now returned to GWP growth, capitalising on buoyant market conditions.
Berger said that the business previously had a “fairly inefficient and ineffective organisational structure” and that expenses were “extremely high”.
“You had a small management team that could hardly cope with the complexities of the business and the geography,” he said.
Berger added: “I think we grew into a falling market with an inadequate balance sheet protection through reinsurance.”
He explained that the carrier failed to pick up on the trends that would lead to mounting losses, such as claims inflation in US casualty business.
“In this growth momentum, people hadn’t read the trends properly,” he said. “The trends were not translated into your costing tools and then underwriting behaviour quick enough.”
Reflecting on the pandemic, Berger said that it had taught the market that it needed to “think the unthinkable”.
He identified cyber as a class of business that could present challenges on a similar scale in the future.
“What everybody is saying is that cyber is probably the next one that we have to get our arms around,” the CEO noted.
On the subject of inflation, Berger said that social inflation in the US remained a key concern and could restrict CorSo's activity in the market.
“I personally felt very uncomfortable in the US on the casualty side,” he said. “I don’t have any reason to be relaxed when I look at what happens in the market, particularly in the US.
“As long as this topic has not been completely understood and tackled you will not see me heavily playing in the US casualty market, for large corporates for instance.”
The world of work post-pandemic
Berger said that CorSo was not mandating a return to the office and was faced with different coronavirus regulations across its global hubs, but that insurance was a sector that benefited from personal interaction.
ESG initiatives meant that the company was unlikely to return to a business travel schedule on a scale seen in the past.
“When it comes to travel we do have our internal targets towards net zero, sustainability targets, and in that context we have committed to reduce our travel,” he said. “So it is not due to Covid.”
On the wider ESG agenda and the energy transition, he said that it was important for the insurance sector to look to make active contributions.
“It is not just about saying: ‘I am not insuring coal’”, he commented.