Swiss Re does not require a revolution and is not the “burning platform” that Corporate Solutions was when he took the reins in 2019, but new group CEO Andreas Berger acknowledges that the group must change to improve performance.
Berger took the reins as group CEO at the start of July, ushering in a new era for the reinsurer as it sought to turn the page on a period of underperformance relative to Hannover Re and Munich Re under predecessor Christian Mumenthaler.
Speaking in his first interview since taking over, he acknowledged challenges that impacted Swiss Re’s performance, some of which this publication flagged in an April deep dive after the succession was announced. (For background see “Swiss Re: What needs to change under Berger”).
The challenges he noted included mistiming a growth drive in the US casualty market, a “purist” reserving philosophy, and the weakening of accountability via organisational complexity.
But while striking a tone of humility around areas where Swiss Re has fallen short, Berger also set out major ambitions, saying he wanted Swiss Re to “close the gap to number one” across a range of dimensions.
He also stressed the importance of consistency in client communications, which would address criticisms the reinsurer has faced in recent years.
“Before I started in July, as a management team we dug very deep and understood that, in essence, Swiss Re and its competitors were all operating in the same market, and there were a few decisions that we took that didn’t turn out positively,” Berger said.
He continued: “An obvious one is the US casualty expansion at a time when the market was really difficult, when rates were down, and we were overweight in this market in comparison to peers.”
Swiss Re’s casualty reinsurance unit has run up an underwriting loss every full year since 2018, and posted a 127% combined ratio in 2023.
Berger explained that Swiss Re’s reserving philosophy had been “really purist” compared to its competitors, with the best estimate approach leaving it “more vulnerable” to earnings volatility. He added that, since the beginning of the year, Swiss Re had introduced an uncertainty allowance on new business to position its P&C reserves “at the upper end of our best estimate range”.
The reinsurer has had to absorb significant adverse development on its casualty back-book from the soft market 2014-19 accident years, adding $2bn to reserves in 2023 and a further $650mn in H1.
Berger also acknowledged that, unlike Hannover Re – which has a significant cost advantage versus peers – Swiss Re became “a bit complex”.
“We probably had too many decision layers. People maybe had to refer too much – and I think that’s something we have consciously now addressed.”
In the latter part of Mumenthaler’s tenure, Swiss Re pushed through organisational change that created market units aimed at reducing the number of links in the decision-making chain and bringing the company closer to clients.
A university with a balance sheet?
Berger also addressed head on the critique that Swiss Re was a “university with a balance sheet”, which some believe has caused a cost drag.
“The DNA of Swiss Re is really understanding risk – risk insights,” he said. “And for that you need very smart people to do that work.”
However, Berger said that what a firm invests in “intellectual capital” should translate to greater customer satisfaction and better business decisions. “I think we lost that translation.”
“If we do research, it needs to lead to something – and we need to be much better at translating it into a business proposition or something that is helping the underwriters do a better job.”
Berger added that “academic” work is not bad, but Swiss Re needed to “make it relevant for the business”.
The new CEO also stressed the need to triangulate between “scientific information” and market data and knowledge.
He explained that it is key to be faster in incorporating new data to close the gap between underwriting expectations and reality. “You can’t ignore the reality. We have to change our mindset here to be faster in recognising what reality is telling you and then adjust your tools.”
Addressing the messaging disconnect
As previously reported, cedant and broking sources complained in recent renewals of a disconnect between Swiss Re’s pre-renewal messaging and its ultimate underwriting.
The most prominent example was its “double double half” framing ahead of 1 January 2023, which meant double the rate and double the attachment point for US cat clients, and half the overrider on casualty quota shares.
The draconian stance was not reflected in its underwriting of individual accounts as it grew more than 20% in nat cat at 1 January that year.
Berger said consistency will be central to market messaging. “You’ve got to have a clear message, a clear language – no surprises.”
In addition, he said Swiss Re would look to create “an alignment of interests” with its clients, and to find the “best solution” and one that was customer-centric.
He stressed, however, that this would still at times involve “a tough message” for clients and brokers.
The ambition to be number one
Berger also walked the line between humility around Swiss Re’s current positioning based on recent performance, and high ambition around its potential.
“I have said to colleagues, we need to accept, to acknowledge, we’re not number one – and wherever somebody is better than we are, we need to have that ambition to close the gap,” Berger explained, resisting the urge to “pretend”.
Berger said this ambition runs across customer and staff net promoter scores, underlying results, expense ratios, use of technology, culture and technical underwriting.
“This is not just for the sake of growing,” he said. “We want to continue to build the best company to hand over to the next generation.”
The former Allianz executive stressed that delivering on this vision doesn’t require Swiss Re to “become necessarily someone else”. He emphasised the strength of the business’ identity, culture, relationships, balance sheet and 160 years of heritage in positioning it to deliver for all stakeholders.
Berger said that, under his leadership, he will focus on delivering for its three key stakeholder groups – clients, shareholders, and colleagues – as well as fulfilling the firm’s purpose to make society more resilient.
For clients, he promised to deliver on the underwriting and claims competences, and to do so with speed, clarity and consistency.
He said he wanted shareholders to trust Swiss Re as an organisation that consistently meets or exceeds its financial targets – and that does not give them surprises.
For staff, he stressed that he wanted to lead an organisation where they are proud to work. This depends on behaving reputably, but also delivering profitability. “You want to be part of the winning team, the A team.”
Bringing all three elements together is the summary of “what I think we should stand for”, Berger stated.
In addition, he said he felt Swiss Re has an advantage on data and technology that it could be better at articulating.
One of his missions would be to leverage its work on risk insights, data services and analytics to drive improved performance, and to support clients. “We’re bringing data much more into the core of the business,” he said.