Swiss Re: Rebalancing of risk sharing must continue
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Swiss Re: Rebalancing of risk sharing must continue


Hurricane Idalia’s pass over Florida’s Big Bend ahead of the Monte Carlo Rendez-Vous served as another reminder that the (re)insurance industry is in “a new normal” of catastrophe loss activity, Swiss Re P&C reinsurance CEO Urs Baertschi says.

It is also a signal that the rebalancing of risk sharing between insurers and reinsurers that took place in 2023 must continue, he adds.

The lifting of reinsurance retentions in this year’s renewals reflected the fact that primary insurers are the part of the insurance value chain which are best suited to absorb attritional losses – and that reinsurers are returning to their role of being the shock-absorbing carriers.

From 2017 to 2022, reinsurer returns were hit by a disproportionate amount of attritional losses, he says.

The rising cost of loss events may have muddied the issues before this year’s reset. “There’s a difference between losses and volatility,” Baertschi explains. Even large loss events are still attritional events if they are recurring frequently.

Although there has been no single major loss event to date this year, there has been a high level of minor international events, from the Turkish earthquake to New Zealand floods.

However, while some of these events are unusual, the Swiss Re CEO is quick to note: “They’re not surprise losses.” Swiss Re’s Sigma data shows that severe convective storms made up 68% of H1 insured cat losses – which reached $50bn and the second-highest H1 level since 2011. This highlights the increasing costs of secondary perils.

Yet, despite this high loss tally, the bulk of 2023’s cat losses have been kept within the insurance frame.

So far, for reinsurers, 2023 has therefore been a proof point of why they needed to adjust retentions.

“You can’t just simply pass losses along the value chain – it's like squeezing a balloon and it pops out somewhere else,” Baertschi says.

In turn, this means the industry focus now shifts to what must be done to bring more premium income into the system at the primary level to make it sustainable.

However, rising insurance costs are becoming more of a political issue in various cat-exposed parts of the world, such as Florida and California where consumer choice is evaporating.

You can’t just pass losses through the value chain – it's like squeezing a balloon and it pops out
Swiss Re P&C reinsurance CEO Urs Baertschi

Insurers are at the frontline of the political pressure, but it also impacts many (re)insurers.

“I think our industry has a bit of an image problem,” Baertschi admits. “We’re being viewed as the bad guys, whereas actually what we have is a product that is meant to pay claims to those people who really need it at that time.”

“There is an awareness gap that the industry needs to tackle,” he continues.

“We also have an opportunity here to explain how we're very additive to the societies that need us during the times that really matter.”

This also goes back to having adequate rates for the risks being taken though, as capital providers cannot do so for free or sub-par returns.

Casualty concerns

Even though reinsurance returns are now expected to be more positive as a result of the decisive turn in the cat markets, the Swiss Re CEO says it is early to judge success after H1 2023 results.

“We're talking about one half of a year; this follows six years in which the reinsurance industry did not earn its cost of capital... it takes much longer than just half a year to rebalance the sustainability of the value chain.”

In particular, Baertschi says the firm’s outlook on casualty reinsurance is “still quite negative”.

“In casualty insurance markets some conditions have improved... but that has not necessarily flowed to reinsurance.”

He expects social inflation fears will lead to more focus on addressing these casualty issues.

Last year, Swiss Re’s messaging on its expectations for renewals was around the “double double half” ask – doubling cat retentions and rates and halving ceding commissions.

Baertschi gives no specifics on what the firm is looking to achieve this year, but says on the casualty side the firm would be looking to discuss a combination of limit management, wordings and commissions with clients.

On the nat-cat market, he expects the overall market to grow as a result of underlying drivers such as urbanisation, inflation and climate change.

However, when pushed on whether the firm itself would look for net growth in the cat space, Baertschi avoids a definite response, saying the firm “remains constructive” in supporting clients with cat capacity.

Baertschi will be taking a more prominent role in Swiss Re’s Monte Carlo delegation this year. He has taken on the P&C divisional leadership after a broader restructuring earlier this year that followed the departure of group CUO Thierry Léger to Scor.

He was previously the EMEA regional reinsurance CEO and he has served on the group executive committee since September 2019. His early years at Swiss Re focused on the private equity and investment business.

Baertschi says the restructuring has been done with the client experience in mind.

“What we're looking to do is to make more of our decisions closer to the clients, to make them faster and to be more responsive to them.”

Aside from the political challenges of the price of cat risk, the ESG area is another topic that has been more of a thorny one for carriers this year. Amid an ESG backlash in US conservative areas, and the effective collapse of the Net-Zero Insurance Alliance (NZIA), carriers are having to tread a more delicate balance in pursuing their sustainability goals.

For Baertschi, it seems that a key part of his vision for (re)insurers’ contribution to the ESG and net-zero debate is in trying to return to the numbers.

Reinsurers have a lot of data, and it is important they bring that to the table.

“We believe that what this topic needs to really make progress is an open and transparent and expert-led conversation and to that the insurance industry can contribute in a meaningful way.”

We have a lot of data and it’s important we bring that to the table for the [sustainability] conversation
Swiss Re P&C reinsurance CEO Urs Baertschi

Along with others, Swiss Re has reiterated that its individual commitment to carbon reduction goals has not changed, despite the NZIA withdrawals.

From a broader view, Baertschi believes the new era of geopolitical and economic risk means there will be more demand for reinsurance protection.

“The risk landscape will keep evolving and you know with that, the whole value chain will need to keep evolving too.”

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