Swiss Re expects further rate increases for loss-affected and underperforming businesses and broadly stable rates in other areas, amid continued capital abundance in the reinsurance market. To ensure a long-term sustainable reinsurance market, further rate increases are needed.
In a statement, Edouard Schmid, chairman of Swiss Re Institute and group chief underwriting officer, said, "The recent experience of hardening rates in reinsurance mainly reflects the response to higher loss occurrences and adverse trends in natural catastrophe markets and other affected segments."
The re/insurance industry is changing at a faster pace than ever before. Swiss Re says that fast-paced change creates challenges and opportunities for the industry, which is facing growing and ever-more complex risks, a wealth of data and a highly competitive market.
The abundance of capital in the reinsurance market has impacted the entire reinsurance value chain, increased cost sensitivity, and is requiring reinsurers to find new ways of creating value for primary insurers.
Some risks, such as secondary perils (eg wildfires, droughts, and floods) or cyber risks, are evolving and require new approaches, also to risk modelling. Increasing liability insurance costs in the US are another emerging issue as re/insurers have to find a way to model and price the impact of social inflation. At the same time, it is a challenge for primary insurers to use the wealth of data available as this requires profound know-how, specific skill sets and the right resources.
The re/insurance industry is also facing growing exposures as the world's population increases, people live longer and accumulate more assets, especially in areas prone to natural disaster. Swiss Re Institute's latest sigma estimates that the combined protection gap for the main risk areas – natural catastrophe, mortality and healthcare spending – reached a record high of $1.2tn in 2018
Swiss Re says the re/insurance industry needs to rethink access to affordable, relevant and effective risk management and insurance safety nets. Reinsurers have a crucial role to play in supporting clients along the entire value chain from innovation design to claims optimisation.
Swiss Re is doing so by fostering partnerships to develop innovative, technology-based solutions which help close protection gaps, tap into new sources of growth, and deliver better products and services to the end-consumer. For example, parametric solutions can provide end-to-end pricing, policy administration and automated claim pay-outs for natural catastrophe events.
Swiss Re has also developed a solid underwriting framework for cyber risks, a suite of solutions for clients, and invests in R&D to stay current with the rapidly evolving cyber risk landscape.
In the field of data analytics, Swiss Re is partnering with companies from outside the insurance industry to access new sources of data which, in combination with existing inhouse data, enable smarter pricing for its insurance clients, helping them grow and optimise existing portfolios.
Swiss Re achieved profitable growth in its reinsurance business in the first half of 2019, underpinned by a strong increase in P&C treaty premium volume and price quality improvement across a broad-based portfolio.
The natural catastrophe business has been one of the main drivers of P&C growth for Swiss Re this year. Large transactions, where Swiss Re combines its expertise and reliable balance sheet to meet client-specific capital management needs, have been another growth area.