Reinsurance giant Swiss Re expects to see further rate hardening across all lines of business at the upcoming renewals, driven by a combination of the low interest rate environment and the need to cover rising loss trends.
Further rate hardening in reinsurance is expected on the back of price improvements in many markets, most notably in loss-affected areas.
At the same time, Swiss Re predicts that there will be more opportunities for insurers and reinsurers as a result of growing demand for protection and rising exposures.
The reinsurer highlights the challenges of the low interest rate environment coupled with the need for prices to cover rising loss trends, as demonstrated by the active 2020 Atlantic hurricane season.
According to Swiss Re, hurricanes are increasingly affecting parts of the world where exposures have increased on the back of wealth accumulation, which results in increasingly severe losses, as seen with the events of 2017 and 2018. As noted by the reinsurer, the current Atlantic hurricane season is the first on record to see nine tropical storms forming prior to August, and 13 before September.
So far, the most notable storm of the season has been Hurricane Laura, which made landfall as a Category 4 hurricane near Cameron, Louisiana in late August. Catastrophe risk modeller RMS has estimated that the storm will drive onshore insured losses of up to $13 billion.
As well as the active Atlantic hurricane season, Swiss Re notes that this situation is exacerbated by the increased frequency and severity of secondary perils, including floods and wildfires. The California wildfire season has been extremely devastating this year and is ongoing.
Moses Ojeisekhoba, Swiss Re’s Chief Executive Officer (CEO) of Reinsurance, commented: “Even before the COVID-19 crisis, most major markets were operating at below-average profitability. To be able to address the growing need for insurance protection in a sustainable way, further price increases across all lines of business are clearly needed.”
A desire to ensure price adequacy means that underwriting discipline is paramount in the current market, with things like risk selection and costing, portfolio steering, appropriate T&Cs, and contract wordings seen as critical to writing future business in a sustainable way.
Swiss Re notes how it is leveraging advanced technology to better its underwriting, and expects further strengthening of underwriting practices across the market as a more scientific, technology-driven approach is adopted.
The reinsurer’s Group Chief Underwriting Officer (CUO), Thierry Léger, said: “At Swiss Re, we have accelerated digitisation and the use of more and better data sources across the entire underwriting process. With these capabilities and the risk insights from Swiss Re Institute, we can improve our own decision-making and effectively support our clients in their underwriting.”
Additionally, says the reinsurer, it partners with clients to help them grow and improve their efficiency and profitability. This includes through the utilisation of data analytics, while the reinsurer also uses tech to support its partners delivering streamlined, digital and affordable solutions.
“In these unprecedented times it’s more important than ever to support our clients with risk knowledge, capital strength and tailored solutions. In the end, it’s about tackling protection gaps together to make the world more resilient,” said Ojeisekhoba.
Today’s renewal and pricing commentary from Swiss Re comes despite the cancellation of the annual meeting of the reinsurance industry in Monte Carlo. The reinsurer continues to host media events in a virtual format, beginning with an overview of the upcoming renewal season.