Swiss Re Chairman Walter Kielholz has said that the industry withdrawal from covering pandemic risk was “unavoidable” because this peril “once again reached the limits of insurability.”
Writing as part of the reinsurer’s annual report for 2020, Kielholz noted that Swiss Re has been prepared for a severe pandemic scenario for many years.
Preparations assumed that losses would originate on the life side of the business, but unprecedented government lockdown measures and travel restrictions led to unforeseen costs for the industry.
As a result, Kielholz says it is no surprise that the private insurance market has looked to exclude pandemic risk from its coverage during recent renewals, as companies were in danger of losing investor support.
“On the other hand, the massive government support measures in so many countries demonstrate how urgently we need to develop a plan to better cushion the economic impact of another pandemic,” Kielhoz said. “Our societies must increase their resilience.”
Swiss Re sees private-public partnerships as an opportunity to work with governments to develop new types of coverage, but believes that such approaches cannot work without a government backstop.
Another issue arising from the pandemic, Kielholz remarked, is the massive market distortions that have been created by government fiscal measures.
“How can national balance sheets be brought back on track? How can this excessive liquidity be siphoned off?” he questioned. “Which government dares to raise taxes in the near future? Which central bank dares to raise interest rates anytime soon? Politicians who wish to be re-elected will not support such actions.”
According to Swiss Re, the only way out of this situation is inflation, which it argues will put the burden on savers and insurance companies and only reduce debt very slowly.
“This is also called the erosion of the value of money,” Kielholz concluded. “I am certain, for various reasons, that we will experience inflation. Not immediately, but soon. Not everywhere to the same extent, but certainly in the US. Swiss Re is preparing for this scenario – as always in an effort to protect the capital of its shareholders.”