Christian Mumenthaler, CEO of reinsurance giant Swiss Re, expects the hard market to sustain and is pleased with how terms and conditions (T&Cs) have evolved throughout 2023, and sees a huge need for reinsurers to become more profitable after a pretty difficult period for the industry.
In a recent interview with our insurance-linked securities (ILS) focused sister publication, Artemis, Swiss Re CEO Mumenthaler discussed current market dynamics and the evolution of the reinsurance sector in 2023.
“We’re certainly happy with how things have evolved. I mean, we see our role as being the insurer of insurers for the very grave cases, big hurricanes, earthquakes. So, this year we played a very significant part in the earthquake in Turkey.
“But when it comes to many of these secondary perils, think about floods, think about fires, the micro position of the house, for example, plays a much bigger role. You can assess it on the ground for the specific house, which means there’s a much bigger role for the primary insurer who actually writes it to make sure they have a good portfolio,” said Mumenthaler.
According to Mumenthaler, it makes a lot more sense for primary insurers to retain those losses because they directly control where they underwrite.
“And of course, Swiss Re and other reinsurers, we’re happy to help. We have some tools, we have some science behind it, etc. But this distribution makes more sense, in my mind, that the smaller events that are more local are carried by the insurance companies, whereas reinsurers are there for the very big events.
“And so, this year, indeed, again, we had a whole series of smaller events, in particular in the US with a lot of convective storms, and some of the insurers have suffered quite heavily,” he said.
As well as the tightening of T&Cs, reinsurers have also benefited from rate increases this year, and after years of losses and low prices, the industry is wondering how long the current market environment will last.
Mumenthaler explained that pricing dynamics are time correlated, so the past plays a big role in what’s going to happen.
“And so, that’s why it’s always very difficult to predict it because it really depends very much on not just one peril, but whatever natural catastrophe activity we see in Q3 and Q4.
“But we shouldn’t forget that the industry has gone through a pretty bad period with a lot of losses, not just the natural catastrophes, also COVID and other things. And the reinsurers in particular have been the shock absorber for a lot of the negative things of the last few years,” said Mumenthaler.
“And in the end, we’re all one value chain. And it is necessary that every piece gets the capital from shareholders, and there’s a dire need for reinsurers to have a higher return, to go back to have an average over time that is sufficient,” he added.
At this stage, Mumenthaler sees a huge need for reinsurers to become more profitable, and ultimately, he thinks this will also sustain prices.
“Now, if you have big losses, I could actually imagine prices to go further up. If there’s actually nothing happening, we will see. So, there’s this time correlation that’s going to be playing a role. But overall, from an environment if we have a normal load of nat cat, I actually see the hard market to sustain for a few more years,” said Mumenthaler.