Swiss Re hikes nat cat exposure into 2022, yet manages lower overall insurance risk metrics

Swiss Re managed a notable increase in natural catastrophe exposures going into 2022 even while riding beneficial macro trends to secure lower risk metrics overall in its insurance books, the group’s FY2021 report indicated.

Capital requirements from the Swiss solvency tests for combined insurance risks fell 4.8% year on year, calculations between the FY2021 and FY2020 annual reports indicated. The figure represents the average unexpected loss that occurs with a frequency of less than once in 100 years over a one-year time horizon.

The sum for P&C was down 3.6% year on year with the dampening effects of inflation model changes, FX effects and higher interest rates "partially offset by an increase in natural catastrophe risk, mainly reflecting higher Atlantic hurricane exposure."

A more stringent stress test measure of annualised unexpected loss (99.5% value at risk on 200-year return period) showed the largest nat cat loss category, Atlantic hurricane exposure, up 16.7% year on year from the prior year stress test.

Those stress conditions showed the natural catastrophe exposure from the Atlantic hurricanes’ scenario with a $6.8 billion loss. The lethal pandemic loss was estimated to be at $3.6 billion.

The capital requirement for Life & Health fell 6.1% year on year. The segment took relief from the same interest rate increases and FX trends that removed risk from P&C, then further relieved by new retrocession agreements and the diversification impact of new longevity business, partially offset by new business in Asia and the US, management said.

Figures reiterate the strong nat cat appetite claimed by management when Q4 financial results were preliminarily reported back in late February.

"We really see this as our core competence to write nat cat," chief executive officer Christian Mumenthaler (pictured) told an online press briefing while vowing not to back down from the risk category.  "There is volatility, but we have a good track record."

Nat cat events in 2021, now considered the fourth costliest year in history, brought sufficient losses to add 2.8 percentage points more than budgeted to the combined ratio for P&C reinsurance. But the 97.1% reading still proved to be the lowest since 2016. Management claimed a normalised combined ratio of 94.7%, below the 95% target.

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