Reinsurance companies reported some fairly significant price increases during the 2022 renewals, but the impacts of inflation and adapted models has, for the most part, offset these rises, according to Christian Mumenthaler, Chief Executive Officer (CEO) of Swiss Re.
In a recent video interview, Mumenthaler spoke with Artemis, our insurance-linked securities (ILS) focused sister-site, about conditions in the reinsurance market ahead of the important January 1st, 2023, renewals season.
The CEO of one of the world’s leading reinsurers explained that while providers of protection achieved some significant rate increases through the 2022 renewal rounds, much of it has been “eaten up” by inflation.
“I would say the combination of inflation and adapted models, in particular on the nat cat side, but also in other places, has sort of neutralised these price increases by and large, when you look across,” said Mumenthaler.
In late July, Swiss Re reported a return to profit for the first half of 2022, and revealed that at the July reinsurance renewals, renewed contracts achieved a price increase of 12%. For H1 2022, the firm’s P&C Re unit achieved treaty premium volume growth of 3% and price increases of 6%.
But Mumenthaler reminded Artemis that the reinsurer also recorded a plus 6% rise in expected loss, explaining that “the reason we have one point better in the combined ratio, is only because we had some portfolio shifts which led to that.”
“Then obviously you have some benefit from the higher interest rates, so that from an economic point of view plays a role. But fundamentally, all the increases are being eaten up by real live issues,” added Mumenthaler.
His comments suggest that despite the rises achieved through 2022, more rate is needed to offset the ongoing inflationary and elevated loss environment.
Looking ahead to the end of year renewals, Swiss Re’s CEO feels that the backdrop is really challenging.
“For many years now, the reinsurers have really done their job that insulated primary insurers from huge shocks over several years. But, of course, over time, reinsurers also need to earn their cost of capital,” said Mumenthaler. “So, there’s a very, very strong need to come back to a profitable territory and get to a sustainable level over time, including the bad years.”
Adding: “We’re going to see insurers fundamentally buying the same or more, because of inflationary pressures, or just the value going up and needing to buy more, plus reinsurance has really worked well in the last few years.
“And on the reinsurance side, you could see that certain players are retreating somewhat from the nat cat markets. So, I would definitely expect hardening to continue in a significant way.”
View the full video interview with Swiss Re’s CEO Christian Mumenthaler below:
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