As capital has become more plentiful and continues to look to insurance risks, it’s no longer the main value of what carriers need to deliver in the market, which in turn has raised the importance of scale, efficiency and ownership of the client, according to Christian Mumenthaler, Chief Executive Officer (CEO) of Swiss Re.
Earlier today, the global reinsurance giant held its virtual 2021 Media Day, which featured opening remarks from CEO Mumenthaler around the event’s two panels: Industry Transformation and Sustainability.
He began by offering an overview of the value chain of the industry, from consumers to intermediaries to insurers, reinsurers, and then the capital markets.
“So, it’s a complicated, relatively long value chain, but it’s fulfilling its purpose to make the world more resilient,” said Mumenthaler.
Focusing on industry transformation, he highlighted two big trends that have been evident over the past decade, the first being capital, which Mumenthaler said has reduced in value owning to its abundance.
“But capital today is plentiful and chasing all opportunities that are around, including insurance risks, as I’m sure you have heard around the cat bond market and all the funds that are created around that,” said Mumenthaler.
“The fact that capital, which historically was one of the most important assets for reinsurers has changed, means also that we have to change, and we have to adapt to these new worlds. Capital has not become unimportant, today capital is just the entry ticket, but not the main value of what you need to deliver in the market,” he continued.
But what does this mean for both Swiss Re and the wider industry? And importantly, how is Swiss Re reacting to this capital change? According to Mumenthaler, there’s a number of elements at play.
“The first element is obviously that scale and efficiency continues to be extremely important, or becomes even more important. As certain products get commoditised, you need scale and efficiency.
“The second one is that the ownership of the client, or being very close to the client and knowing what the client wants, becomes more important,” he said.
Mumenthaler reminded the audience that Swiss Re has relationships that go back 150 years, in all parts of the world. These relationships, he stressed, become vitally important “because if you’re close to the client, there’s not just a commodity part that you’re seeing, there’s also specific transactions or solutions you can develop together with the client.”
The third element is what Swiss Re calls service and solutions, which is essentially offering things outside of the pure capital transfer.
“It can be digital solutions… and developing products together, finding ways of doing that more efficiently. So, basically, a differentiator compared to just this traditional, more commoditised reinsurance,” he said.
For Swiss Re, the fourth factor, which it has been doing for around 20 years, is doing transfer to the capital markets and retrocession.
“And, we have strongly continued to develop that because that allows us also to access this part, should this develop even further. So, to have a foot also in the capital markets and having all the capabilities and skills to transfer risks to the capital markets, which we can bring then also again to our clients and help them to transfer the risks,” said Mumenthaler.
Adding, “So, that’s the reaction to this shift, and the shift is probably a long-term devaluation of capital towards other things that are more important, around risk knowledge and client relationships.”