Looking ahead to 2022 with Swiss Re

If 2020 managed to lead on a scoreboard for most dramatic year so far, 2021 was not far behind.

Much of the fallout from events of the last two years is still being played out, with rising inflation coming on the back of a worldwide recession. Mohit Pande, head of property underwriting for the US and Canada at Swiss Re, spoke to the 1:1 Club, Intelligent Insurer’s online and on-demand platform for one-on-one interviews with industry leaders, to talk about current market conditions.

“I would describe the market as being volatile and uncertain right now,” Pande said. “Within this challenging environment, the industry has played its role of being a shock absorber quite well, by providing solutions and improving overall resilience.”

Pande also applies such positive thinking to rates. “If you look at it from the rate side the environment is a positive one. However, it’s important that this environment continues to improve as we look ahead, so that it can keep pace with the loss costs we are seeing for property business,” he said.

Topics for conversation

When Pande spoke to Intelligent Insurer, the industry was still in the middle of renewals season. The question was put to him about what, at this stage, the main talking points had been.

Topics included the current higher-than-optimal inflation being seen around the world, which is expected temporarily at least to hit 4 percent (double the accepted target) in 2021. A lot of that, he said, is due to increases in construction costs, allied with a labour shortage and compounded by supply chain issues.

“Our pre-renewal discussions have centred around the increasing cat loss activity we have seen. 2021 is turning out to be another active and challenging year. From the cat standpoint, there is an increased risk awareness and acceptance that relying on the past is not a good predictor of the future.

“We need to rely on shorter observation periods and forward-looking views when we are modelling cat risk,” he explained.

Another issue, borne from the pandemic, has also raised its head: getting more clarity on contract wording such as what is and what is not covered.

“That’s a lesson that came out of COVID-19 for the industry. Cyber has also been important,” Pande said.

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Extreme weather events in 2021 no longer seem so extreme and appear to be becoming the norm. There were severe storms across Texas earlier in the year, extensive flooding within Europe, and hurricanes across the US. All of these have had an impact on the bottom line for many insurers and reinsurers.

“When we look at the events of this year, Hurricane Ida in Q3 has been the largest insured loss of 2021—of around $30 billion” said Pande. “Then we had the winter storms that impacted Texas and other US states.

“They were of a historic nature. If you look at these events individually, you can rationalise the uniqueness and their complexities, but if you look at them collectively, they have just added to a series of cat events that we have seen recently.

“This is putting much more focus on the need for the rates in property business to keep pace with the increased loss trend that we are seeing.”

Lessons

On lessons learned Pande said that the importance of insurance was being underlined in areas not previously affected by issues such as flooding.

“One of the lessons which has already come out is that while the levées holding in Louisiana was a bright spot, the images of flooding in the Northeast was a reminder that flooding can happen in less-obvious areas and outside the flood zone.

“Unfortunately, people are not protected for flooding on the homeowners side. The take-up rate is extremely small—we put it at between 5 to 10 percent. These people need to be protected and the private flood insurance industry is ready to step up.”

Another issue that has been concerning Pande is that of the losses arising from secondary perils. “They have been steadily growing,” he said.

“It’s important that the industry is careful in underwriting and pricing these risks, particularly the ones that are either not modelled or modelled inadequately.

“In that risk modelling, it’s important that we rely more on the short-term history, because relying on longer-term history is going to result in an underestimation of the actual risk from secondary perils,” he concluded.

To view the full 1.1 Club interview click here