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Swiss Re set to benefit from retro lock-up in 1.1 renewals: Dacey

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Swiss Re stands to benefit as competitors struggle to secure retro capacity when they look to renew their own inwards treaty reinsurance business on 1 January, according to CFO John Dacey.

On a call following the publication of the carrier’s Q3 results this morning, the executive commented on the lack of fresh retro capacity this autumn as investors shy from cat volatility following repeated meaningful losses.

Yesterday, Scor global P&C CEO Jean-Paul Conoscente said the French carrier would be forced to restructure its retro programme due to a scarcity of aggregate and proportional retro capacity.

Similarly, Renaissance Re CEO Kevin O’Donnell said earlier this week retro capacity would “shrink due to poor performance and substantial trapped capital”.

Dacey said: “We see some challenges in the retro market, with capacity being trapped and not a whole lot of new money coming in, so firms like Swiss Re, which fund the majority of growth with its own capital, are in a good position in these renewals to deploy that capital.”

Swiss Re this morning reported a $1.5bn profit for its P&C unit for the nine months to 30 September, despite a cat load of $1.7bn, including $750mn from Hurricane Ida, in Q3.

Investors reacted positively to the announcement, with Swiss Re’s shares trading up around 3% as of 9.30am BST.

Dacey said the P&C unit’s performance – illustrated by a nine-month combined ratio of 97.5%, ahead of a 97.7% consensus – was due to a sustained effort to improve underwriting margins tracing back to the last January renewals.

The segment’s return to profit, from a $201mn loss at the same point last year, “reflects a continued push we’ve had for some time on margins and making sure the business we write is profitable even with a large loss load”, Dacey said.

“Our nat-cat portfolio still is operating with a combined ratio below 90%,” the executive added.

“Because this is a volatile sector of the market, we demand a return which, on average, would be very profitable, to absorb the damage we would see through the course of a year like 2021.”

Swiss Re had already disclosed a $750mn Ida loss.

While it has given no update on its costs from Winter Storm Uri, Dacey today revealed that its losses from the flooding that struck Central Europe in July were around $460mn for the P&C unit and $35mn for the Corporate Solutions segment.

Dacey said Swiss Re had, from last year’s January renewal, moved away from the lower layers of reinsurance programmes that have been continually hit by mid-sized catastrophes to protect its own earnings and send “a very strong signal to the market about where appropriate pricing was and was not”.

“We removed ourselves from approximately $2bn of notional exposure coming into 2021,” the CFO said.

“We would expect that, after the events of 2021 … there will be a re-evaluation of risk and appropriate pricing that will move towards our own models.”

Dacey’s comments come amid mounting concern among reinsurers over the future viability of cat business, as climate change increases the severity and frequency of cat events and worsens the impact of secondary perils, such as this summer’s flooding in Central Europe.

Axis Capital CEO Albert Benchimol, for instance, said yesterday the Bermudian reinsurer would not increase the amount of cat exposure it takes on, “no matter what the price is”.

Similarly, Scor said in its Q3 update it has already begun rebalancing its P&C portfolio away from cat business and towards non-cat property and specialty treaty instead.

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