Swiss Re: Reinsurance will be instrumental in de-risking new investments

Reinsurance will play a “significant role” in how people de-risk new investments within a multipolar world that is increasingly influenced by macroeconomic conditions, said Moses Ojeisekhoba, Swiss Re’s CEO of reinsurance, at this year’s Rendez-Vous in Monte Carlo.

With the increasingly uncertain environment driving greater demand for reinsurance, Ojeisekhoba added: “From my perspective, this is a role that a company like Swiss Re and the industry must continue to fulfil.”

And with social and economic inflation hitting the insurance industry simultaneously, it is important to have realistic expectations of claims inflation and risk-adjusted pricing, Swiss Re said.

Ojeisekhoba noted that specialty markets will continue to grow, driven by increasing demand, with infrastructure investments presenting significant growth opportunities.

The Russia-Ukraine conflict highlighted accumulation risk in aviation, marine and credit and surety lines, he said, while the accelerated energy transition requires risk knowledge for renewables, as well as significant investment.

Social inflation is also impacting casualty, outlined Ojeisekhoba. With a “clear indication” that costs from casualty are increasing, the market requires disciplined underwriting and tailored reinsurance structure offerings to cover social inflation trends.

Elsewhere, supply chain disruption and other structural issues are leading to a claims surge in business interruption (BI) covers.

Swiss Re noted that many industries have observed a strong increase in gross margin in sectors where shortage and inflation are high, leading to compressed insured limits.

Therefore, the reinsurer highlighted the importance of including supply chain exposure in risk selection, pricing and coverage terms of property damage, BI and contingent BI covers.

Also speaking at the Rendez-Vous, Thierry Léger, group chief underwriting officer at Swiss Re, noted that nat cat losses have been driven by rapid urbanisation, wealth accumulation and climate change.

With nat cat claims continuously growing at a compound annual growth rate of between 5 percent and 7 percent, he said the industry has been in “catch-up mode” since 2017, with a distinct lack of modelling for secondary perils, as well as exposure data gaps and overly optimistic loss experience observation windows.

However, Léger added that the industry is on the road to more sustainable reinsurance, with moves to elevate secondary perils to primary perils, and improvements to exposure data availability and modelling to reflect the newest risk growth trends.

Discussing the reinsurer’s nat cat business, Ojeisekhoba noted the importance of accurate pricing and risk selection as demand grows.

He added that Swiss Re does not intend to change its appetite for nat cat exposure, instead stating that focus will continue to grow.

For cyber, Léger noted that owing to the rise in technology, intangible assets and digital services, risk concentration continues to grow, warranting a conservative view on tail risk.

As cyber premium levels still do not cover catastrophe-type events, capacity increasingly becomes a limiting factor for demand, said Swiss Re.

The reinsurer suggested that by 2040, cyber premium could represent the same level of premium as property.

As in nat cat, he said the business will be able to learn from past losses to improve reference data and adjust models and prices – and better data and improved models are certainly required to increase the amount of capacity offered by the insurance industry.

“While the world in which we live today is uncertain, there are complexities and challenges, at the end of the day from our standpoint it is important for us to continue to partner with our clients in a way that is mutually beneficial,” Ojeisekhoba concluded.

“Where exposure rises and grows, it is super important that the price of that risk is reflected. As a result of that, and from what we have seen, as we go into 2023 everybody recognises that the price of risk has to rise.”