Social inflation, elevated cats and low interest rates are main 1.1 drivers: Wolfe

Social inflation, elevated cat activity and low interest rates are the main drivers of rate firming pressures in the reinsurance market, despite the impact of Covid-19, according to Swiss Re’s president of US P&C Keith Wolfe.

In a video interview with The Insurer, the executive said current market conditions in the build up to the 1 January reinsurance renewal are a continuation of those seen since the beginning of 2020.

“There has been quite a bit of firming in most classes of business that had started as early as January and we saw that trend continue into mid-year renewals,” said Wolfe.

Rather than the ongoing pandemic, it is underlying drivers that are most influencing those dynamics, he commented.

“[It’s] social inflation… then this increased catastrophe environment we continue to find ourselves in as well as the depressingly low interest rate yields, which got even lower as we got further in 2020. So it’s actually not as much pandemic and Covid-19-related as it is those other things,” the executive suggested.

Wolfe highlighted pressures in segments of the casualty market that have been driving insurer and reinsurer behaviour, including the higher limits, higher attaching excess and umbrella space for commercial risks and general liability.

“We saw most of the factors I just referred to around social inflation and interest rates really hit that space so we’ve been contracting our exposure and the primary market has been adjusting considerably as well,” he said.

Meanwhile in property Wolfe pointed to the challenges in Florida and wildfire-exposed areas of the Western US, which are driving some of the biggest increases for reinsurance pricing.

“Anything that’s significantly wildfire-exposed out west, seeing what’s happening again this year, it’s not a good story and I think there are a lot of surprises in many portfolios about the amount of damage that can be done by these severe wildfires,” he commented.

Wolfe also talked about the issue of uninsured flood risk, which has been thrown into sharp relief this year by the frequency of landfalling storms in the US.

“We still continue to beat the drum that US flood is an insurable risk that is unfortunately largely not taken up by most of the population. This is an opportunity area for the industry as a whole and we at Swiss Re have some fantastic opportunities we see in this space.

“It’s depressing to see events that come onshore and dump a bunch of rain and flood a bunch of areas of the country. These are risks that could be insured and transferred if people chose to do so and we need to fix this problem because uninsured flood risk is really not necessary anymore,” he added.