Christian Mumenthaler, Chief Executive Officer (CEO) at Swiss Re, believes pricing in the property and casualty (P&C) reinsurance sector is still at an unacceptable level despite improvements over the last two years.
Mumenthaler told Reinsurance News in a recent interview that he was confident the market would continue to bring pricing back up to more sustainable levels.
He noted that global reinsurance books have only seen pricing improvements of about 1% overall, despite unprecedented catastrophe losses in 2017 and 2018.
As a result, the industry is generating return on equity of just 4-6% and is still unable to cover its cost of capital, he argued.
“The P&C pricing environment has improved as a result of the major natural catastrophes seen in the past two years, and we expect this trend to continue for loss-affected and underperforming businesses,” Mumenthaler said.
“I am optimistic that we might see the trend of improvement continue more broadly, and I think the whole market knows that it is necessary for a healthy and sustainable reinsurance market in the long term,” he added. “The prices we are seeing in the market are still too low.”
The Swiss Re boss also said that the company was responding to changes in the pricing environment by deploying more capital in reinsurance to take advantage of the opportunities to grow.
“Internally, we have conducted a review of our portfolio and are in the process of refocusing it on selected profitable areas and specific customer segments, where we can benefit the most from the improving price environment,” Mumenthaler told Reinsurance News.
This is the case in corporate insurance, which was hit harder by the soft market in the previous years, and which has seen a significant improvement in rates that is expected to continue through next year.
However, whilst not replenishing as quickly as it has done before, the industry is still dealing with an abundance of available capital.
This is expected to maintain pressure on the overall pricing environment, particularly for rates in loss-free geographies and lines of business.
“To get to a sustainable base for the long-term, the trend of improving rates in the corporate insurance segment and in reinsurance will need to continue,” Mumenthaler explained.
“And on the asset management side, the persistently low interest rates continue to be a big challenge for the re/insurance industry.”