Discipline in the face of uncertainty says Swiss Re

Swiss Re has joined the call from leading reinsurers for greater discipline in the pricing of risks as global geopolitical tensions, macroeconomic developments and climate change drive demand and with it exposures.

Speaking in Monte Carlo at the Rendez-Vous de Septembre 2022 Swiss Re’s CEO Reinsurance, Moses Ojeisekhoba, said: “On top of impacts from COVID-19 and increasing losses from natural catastrophes, the re/insurance industry is now confronted with issues like inflation, risk of recession and geopolitical tensions. We have proven our resilience by supporting clients and society throughout the last years by paying large insurance claims. As we see cost drivers accelerating in this dynamic risk environment, insurance premiums must be carefully calibrated to keep pace.”

He added: “In times like these, when challenges manifest themselves in the form of heightened risks, we at Swiss Re are well positioned to navigate these turbulent times together with our clients. By leveraging our risk knowledge, capital strength and client franchise, and providing innovative solutions we continue to create value for our clients. This is supported by our leading data and analytics capabilities, which will play a key role for future success.”

The reinsurer said geopolitical tensions, inflationary pressures and knock-on effects such as energy shocks, cyber threats and supply chain disruptions pose challenges for society and ultimately the re/insurance industry. In addition, climate change is increasingly manifesting itself with no end in sight. At the same time there are significant opportunities to hedge this volatile environment with insurance solutions. Increased risk awareness and exposures will result in more demand for insurance protection across all businesses and regions, translating into a positive outlook for premiums. For instance, Swiss Re Institute expects a $33 billion increase in commercial premium volumes in the period from 2022 to 2026 as a result of supply chain reshoring. And if countries deliver on building all the renewable energy capacity that they have so far targeted, the investments in green energy are expected to generate additional energy-sector related premiums of $237 billion by 2035.

Swiss Re said it would now seek to grow and diversify its natural catastrophe portfolio. The natural catastrophe re/insurance market is forecast to grow to about $48 billion over the next four years from $35 billion according to Swiss Re Institute. The market needs to keep up with growing loss trends and develop modelling capabilities for weather-related risks such as secondary perils. Swiss Re, with its proprietary models and significant natural catastrophe research team of 50 natural scientists and engineers, is well positioned to offer natural catastrophe solutions to better navigate existing market conditions.

Against the backdrop of an uncertain environment Swiss RE said effective underwriting called for more frequent adjustments to underwriting practices. Focusing on quality and margins as well as contractual clarity in the whole industry will be key in this respect.

Swiss Re’s Group chief underwriting officer Thierry Léger said: “To enable the insurance industry to keep up with increasing demand, three factors will be key: evaluating and modelling the evolving trends, ensuring a shared understanding of contractual terms and generating improved technical margins to reflect the effective risk.”

He continued Swiss Re continuously reviews and updates its underwriting models to incorporate new learnings, improved scientific understanding and additional loss experience to reflect the risks clients will be confronted with and to offer the coverage needed. It is collaborating with leading universities such as the Massachusetts Institute of Technology (MIT), ETH Zurich, Berkeley and the Swiss Federal Institute of Technology Lausanne (EPFL) to address the latest machine learning techniques to enhance its predictive models.