Swiss Re CFO John Dacey, speaking during a media call this morning, highlighted the reinsurer’s move away from certain lower-layers of risk to help protect earnings while expressing cautious optimism for industry-wide positive rate improvements in the run up to 1/1.
Dacey noted how an increased frequency and severity of weather events/secondary perils will require an improvement in pricing for reinsurers and ultimately mean primary insurers need to charge more.
Dacey also pointed out that Swiss Re’s natural catastrophe portfolio is still operating with a combined ratio below 90% this year
“At that level we think this is value creating for us and we’re happy to write this business and engage with clients on increasing some positions if the pricing is adequate,” Dacey added.
Some challenges in the retro market were flagged, with capacity being trapped and not a whole lot of new money coming in, albeit less so for capital rich firms such as Swiss Re.
On cat business, Dacey further expressed a perception of underpriced lower layers, underlining Swiss Re’s clarity on the subject of market hermongony, “there are parts of this that are correctly priced and we’re pleased to participate in, but this tends to be in the upper layers,” he said.
“We’ve also been vocal in saying that in 2020 and the beginning of 2021, that lower layers in some geographies seem to be underpriced, particularly aggregate covers.
“We’ve removed ourselves from approximately $2 billion of notional exposure coming into 2021, to reduce that exposure because we didn’t feel it was adequately priced at the time. We cost this at a loss ratio which ensures that we can make a profit.”
