John Dacey, Swiss Re’s Group Chief Financial Officer (CFO), said during this morning’s media call that the firm’s overall exposure to natural catastrophe risks could increase when compared to recent years amid the strong rate environment, although the reinsurer continues to reduce exposure to high frequency events.
In its first-half 2023 results, released this morning, Swiss Re reported a year-on-year decline in nat cat losses to $634 million, driven by the devastating earthquake in Turkey and Syria, Cyclone Gabrielle and flooding in New Zealand.
These events all occurred in the first quarter of the year, and while overall the first half loss experience for the re/insurance industry was not benign, pegged at around $50 billion, it was driven by secondary perils, notably severe convective storms in the U.S., which Swiss Re has been reducing its exposure to.
Despite the lower exposure to these types of events, CFO Dacey explained that Swiss Re doesn’t “necessarily expect that the nat cat burden is going to go down. What we think is we’re less exposed to these high frequency positions.”
He went on to note that Swiss Re has been talking to the industry and investors about secondary perils for a while and has the view that these risks have been under-priced for some period of time.
As a result, starting around three years ago, Swiss Re “started dusting our own portfolio to reduce our exposures, and we’ve continued to do that even through 2023,” said Dacey.
“One of the mechanisms by which we were exposed is what we call aggregate covers, where primary companies could aggregate a series of small losses and eventually make a claim in that overall position. So, I think we’re in much better shape on those smaller events,” he added.
Of course, Swiss Re is still exposed to large events such as earthquakes and hurricanes, and Dacey stressed that it’s the company’s role to be there for primary insurers when these events occur.
“And that means our overall exposure, I think, will continue to be at or maybe even above where we’ve been in recent years, given what we think are interesting price opportunities,” said Dacey.
Year-to-date, Swiss Re achieved a price increase of 18% on renewals, with rises most pronounced in nat cat. On a net basis, the reinsurer has reported a 5% price increase, which translates into a roughly 3% benefit to the combined ratio.
Nat cat business up for renewal in the first half of 2023 was $3.8 billion for the reinsurer, but the premium volume increased 12% to $4.3 billion, which the company attributes to rate improvements, while it continues to cut exposure to low-attaching events and aggregate covers.
Alongside the move away from frequency events, Dacey confirmed today that the reinsurer remains underweight in the State of Florida, but highlighted that there have been price increases in the region as well as legislative reforms, although it remains to be seen if this has the desired impact on the region’s property market.
“But our overall view is this market still is not functioning as it probably should economically, and we need continued adjustments both in the structure of the market but also in the ultimate pricing for us to be more comfortable to have a market weight.
“So, we’re present. We’ve worked with a number of clients that are there, but we remain cautious in the state,” said Dacey.
The carrier reported an impressive set of results today, including a significant rise in net income as the P&C Re combined ratio improved to 94.7%.
