After an extended soft cycle, reinsurance rates have now begun to improve, though pockets of soft pricing remain. Moreover, protracted record low interest rates are a real shock to the industry. Swiss Re is well placed to capture future growth opportunities, due to its excellent capitalisation, the benefits of its strict underwriting discipline, its proven track record of innovation and very strong client franchise.
Stefan Lippe, Chief Executive Officer of Swiss Re group, says: “The current economic environment, with extremely low interest rates, volatile stock markets, and uncertainties around future inflation expectations, poses a significant challenge to our industry today. In this situation, diversification, size and agility, founded on disciplined underwriting and low-risk asset management, are key pillars of a successful strategy for tomorrow. Our value proposition to cedents and clients remains intact and is as strong as ever.”
Swiss Re is well on track with implementing its new group structure that aims to optimally capture growth opportunities across the re/insurance market, says Stefan Lippe.
Low interest rates constitute biggest shock of the last three years
According to Brian Gray, Chief Underwriting Officer of Swiss Re: “Low interest rates have been the real shock for the industry over the last three years, and are far more significant than the 2010-2011 natural catastrophes. If not compensated by significantly lower combined ratios, earnings capacity of the industry will erode over time.”
Natural catastrophe prices increased in April and July 2011, driven by the claims from events in Australia, New Zealand, and Japan, as well as from vendor catastrophe model changes. Underwriting terms for P&C business have started to improve, particularly for peak risks. Several European motor markets have also seen rates starting to firm.
Casualty, on the other hand, shows less sign of change. “Players continue to release reserves, and there has been sufficient capacity in the market to keep prices flat," comments Gray. “However, the reality of low interest rates will be felt, and at some point, the bubble will pop.”
Swiss Re expects a modest, broad market turn over the next 3 to 15 months.
Innovation power and strong capitalization
“Swiss Re has always been an innovator," says Christian Mumenthaler, Chief Marketing Officer and designated CEO of Swiss Re’s reinsurance operations from 1 October 2011. “Over the last few months, we have struck another series of deals which demonstrate our innovation power, client orientation and reputation in the market.” For instance, Swiss Re just concluded two important P&C run-off transactions which freed up capital for clients to invest in new business.
Regarding capitalization, Swiss Re holds a comfortable buffer in excess of the level required for an AA rating by S&P. Moreover, in combination with a conservative asset management strategy, Swiss Re has applied strict underwriting discipline over the soft cycle, forgoing market share if price adequacy was not met in previous years. In 2011, the company saw successful renewals, with its P&C treaty portfolio growing by 20% while price adequacy was maintained.
Stefan Lippe concludes: “We have a proprietary, deep understanding of risk and underwriting; we have a conservative asset strategy in place to navigate through difficult markets; and we have a track record of innovation. On top of this, our capitalisation is excellent. All this positions us ideally for capturing exciting new business opportunities with our clients.”