Executives at reinsurer Swiss Re have said that further rate improvements are needed after “timid” price increases across the reinsurance sector, which have ultimately failed to compensate for years of premium decline and the elevated claims load.
Addressing the media this week as part of Swiss Re’s virtual Rendez-Vous de Septembre 2020 calendar, was Group Chief Underwriting Officer (CUO), Thierry Léger and Moses Ojeisekhoba, the company’s Chief Executive Officer (CEO) of Reinsurance.
In light of rising loss cost trends and the persistent low interest rate environment, Swiss Re expects to see further rate hardening across all lines of reinsurance business at the upcoming renewals.
While the reinsurer did not want to provide an estimation of how much rates might increase at Jan 1st, 2021 and beyond, and in which regions and lines, executives did provide a more detailed view on current market conditions.
“Very clearly there have been increases in premiums observed. But, as I told you before, they have been hardly enough to actually offset the interest rate decline of the first half of this year,” said Léger.
“Also, these timid increases have, by far, not been able to compensate for many years of premium decline before. And, they have in no way been able to compensate for the increased claims load that we are observing around us. As a result, we see a real need for strong price increases to get back to underwriting profits.”
Expanding on this point and the shift away from a prolonged softened marketplace, Ojeisekhoba explained that from his perspective, whether the market is hard, or hardening is semantics.
“I think at the end of the day, the big question mark is when you look at risk, the risk that you take on, do we have sufficient pricing to cover the exposure that’s taken on? And, I think, across most lines, Thierry gave significant evidence earlier as to why we do not quite feel that pricing is at the point where it covers exposure.
“So, until you do that, certainly from our perspective, we feel rates need to go up. Whether it’s hardening or hard, the honest truth is, from my perspective, I don’t see that as a point of debate. The point of debate is whether prices cover risk, because ultimately you need that in the long-term to have an industry that’s sustainable.
“If you don’t have that, then you will end up for an industry that customers rely on heavily, that somehow it’s not as strong as it should be. So, we need an industry that’s sustainable. And for that to happen, we need to make sure we attach the right price to the right risk and the right exposure,” said Ojeisekhoba.
Léger added: “For sure, at the point we stand today, we are not at that level, whether you call that a hard market or not. But, that’s not the level we have achieved yet. I referred to timid price increases so far. So, we are very much on the reinsurance side, at the beginning of hopefully a longer trend.”
For Swiss Re, the focus is going to be on underwriting discipline as it navigates the current market landscape, which, as the reinsurer highlights, is full of opportunity for both insurers and reinsurers amid an expectation of heightened demand for protection.