While progress was made at the January 1st, 2023, reinsurance renewals on shifting attritional losses back onto the balance sheets of primary insurers, there’s motivation to further increase attachment points in certain areas, according to Thorsten Steinman, Head Property & Casualty Reinsurance, Northern, Central & Eastern Europe, Swiss Re.
During this morning’s Swiss Re Baden-Baden media conference, executives from the firm discussed market dynamics across the EMEA, highlighting that while there are challenges, a plus for the sector is that demand for reinsurance across the region will continue to rise.
After exploring the natural catastrophe and property space, casualty issues, and also the global specialty landscape, the firm hosted a Q&A, during which executives were questioned on the industry’s ability to meet its cost of capital.
“I think the reinsurance industry hasn’t earned its cost of capital over many, many years. And we are not even sure in 2023, based on the latest Sigma, whether the industry can earn its cost of capital in 2023,” said Steinman.
In last month’s Sigma report, Swiss Re said that the insurance industry’s cost of capital has risen to its highest point in a decade due to a confluence of factors.
Steinman explained that at the 1/1 2023 renewals, the higher cost of capital was addressed.
“Look, in the past, most often nat cat losses, even attritional losses, I call it, landed on the balance sheet of the reinsurance companies, right. What we strongly believe in at Swiss Re, is that attritional losses they can be much better handled by primary insurance companies. Whereas reinsurers, like Swiss Re, we should be the shock absorbers, we should be there for the big losses, because we have the capital strength, the global reach, etc, etc.
“And there was a misbalance in the past that was corrected at 1/1 2023. When I say corrected, then I say we are probably not 100% there in all countries, in all programmes, in all lines,” said Steinman.
As a result of the inflationary environment, the increase in exposures, and current loss trends, Steinman said there’s motivation to further increase attachment points with some clients, “in order to keep it balanced what we tried to accomplish at 1/1 23.”
This isn’t across the board, though, with Steinman noting a client by client, programme by programme approach.
The Jan 2023 renewals were a challenge for many buyers of protection, as lower layers vanished in certain instances as reinsurers moved away from aggregate covers and frequency risks in order to offset years of high nat cat losses, driven by a rise in so-called secondary perils.
Losses from severe convective storms, floods, and wildfires have again been high in 2023, but unlike previous years, insurers have retained more of the losses as reinsurers focused on being the shock absorber for large events, such as hurricanes and earthquakes.
With demand for reinsurance expected to increase, and sellers seemingly eager to maintain or even push attachment points higher in certain cases, it’s going to be interesting to see how the January 1st, 2024, renewals unfold, despite commentary of it being more orderly than last year.
