Speaking with Reinsurance News amid the Baden-Baden 2023 conference, Swiss Re’s Thorsten Steinmann suggested the main focus of discussions with clients ahead of the Jan renewals will be around the evolving risk landscape, which he said has driven more demand for reinsurance in Europe, alongside the cost of capital.
When asked about the focus of discussions with clients ahead of the Jan renewals, Steinmann, Head Northern, Central & Eastern Europe, Managing Director at Swiss Re, said, “I think we’re going to talk about the evolving risk landscape and the increased risk awareness, which resulted in more demand for our industry, which is valid for insurance as well as reinsurance.”
Steinmann continued, “To give you an example, we expect in EMEA (Europe, the Middle East and Africa) alone, EUR 4-5 billion of additional nat cat limit could be purchased at 1/1 this year.
“As the second point, we can talk about the higher frequency of nat cat losses. In the first six months of the year, there were around USD 50 billion of insured losses globally, so, it looks like USD 100 billion per year is here to stay, while the share of the secondary perils is increasing. On average over the last 10 years, 58% of all insured nat cat losses were driven by secondary perils.”
Steinmann said that the firm will also discuss with clients the rebalancing of risk between primary insurance companies and reinsurance.
“We made good progress at 1/1 2023 by increasing the attachment point, but there are some areas where we still need to make further progress,” Steinmann explained.
He went on, “So, the question is, which part of the value chain should cover which part of the losses? We strongly believe that the insurance company should take care of the attritional losses, and the reinsurance should be more like the shock absorbers.
“Then the two special topics, we had a significant amount of medium and large fire losses this year in EMEA, so we need to address this. Last but not least, in most of the European markets motor performance is well above 100%. Germany is a prominent example with a forecast 109% combined ratio. We have to talk about those performances as well with our clients.”
Discussing whether Swiss Re is currently seeing more demand for reinsurance in Europe, Steinmann said, “Yes absolutely, for two reasons. So, the one I mentioned before, this evolving risk landscape, I think clients will buy more reinsurance and more nat cat protection. But another trend is the cost of capital. With the higher yield, the cost of capital is increasing quite significantly.
“If I put myself into the shoes of a CFO of a reinsurance buyer, they will now have a closer look and compare my cost of capital on the one hand and my cost of reinsurance, and they will most likely come to the conclusion that reinsurance is not only more cost-efficient, but also more flexible, more strategic, and more private than traditional capital.
“This is valid for the core business like the annual renewable business, and also for capital management-driven transactions.
“So, in a nutshell, reinsurance can lower the cost of capital and boost return on equity, reinsurance can enhance capital efficiencies, and reinsurance can also improve solvency margins and enable growth.”
Reinsurance News then asked Steinmann if he thinks much of the work around terms and conditions has been achieved or if he expects more adjustments at 1/1.
He answered, “It’s needless to say reinsurance has made good strides towards more sustainable structures, and a new price equilibrium has probably been reached, but nevertheless, we expect this path to continue for the foreseeable future.”
Steinmann also observed that in order to ensure future insurability, there needs to be sustainable reinsurance as well as insurance products, and markets and prices need to reflect the risk, especially in times of high inflation.
Steinmann maintained, “What is important to mention is this is not a one-size-fits-all approach. It’s always a deal-by-deal approach. We look at the structure, we look at the attachment points, and we look where the losses came from, is it traditional losses affecting a program, or is it one large one-off event?
“We look at relationships, often a property program is only one piece of the puzzle, and we have many treaties with the clients. We also benefit from the fact that we are not only talking with our clients in Baden-Baden but also, have many portfolio discussions during the year.”
In closing, Reinsurance News asked Steinmann his thoughts on the use of parametric solutions to help address rising losses from secondary perils in Europe and elsewhere.
He highlighted that he would still consider parametric to be a niche, but a “very promising niche that’s gaining significant momentum.”
“Parametric solutions use easy-to-validate triggers and payout mechanisms to speed up the claims payment process in case of a loss. The big benefit of parametric solutions is that they are a great tool for making insurance more accessible and also more affordable,” Steinmann said.
He concluded, “However, from our perspective, parametric can only be seen as complementary to existing insurance products. To your specific question on secondary perils, the issue is that you have partly high expected loss load, as we’ve seen in the last 10 years.
“In certain cases, we can insure some of those perils like flood, hail and drought via parametric programs or to help complement existing covers.
“As always, it is important to understand the specific risk and the specific need, and what you as a client want to protect in the end, and there, we are more than happy to find a sustainable solution with our business partners.”
Thorsten Steinmann has 30 years of experience in the insurance and reinsurance industry, having joined Swiss Re in 2006 as part of the integration of GE Insurance Solutions. Since 2019, he has been Head of the Casualty Underwriting department for EMEA based in Zurich.
On 1 January 2023, Steinmann assumed market responsibility for Swiss Re’s reinsurance business in Germany, the Nordic countries, Austria, Central and Eastern Europe, the Netherlands, and Switzerland. On 1 April 2023, he in addition was appointed head of the Germany branch, which is headquartered in Munich.