Swiss Re CFO expects rising demand from cedants

Swiss Re expects higher demand from cedants for reinsurance cover as primary insurers seek to reduce volatility after the nat cat losses of the third quarter.

When results are good and primary insurers are feeling strong, they tend to reduce the level of risk they cede into the reinsurance market as they feel comfortable holding more risk, Swiss Re chief financial officer David Cole said during the 9-month results media conference call.

“But when the losses actually occur it reminds people of the impact that can have on their results, the volatility that it brings into their results,” Cole explained. “And as we’ve seen in the past we expect the companies will once again think about the value of reinsurance and the support it actually provides to their financial condition and their financial results,” Cole explained.

Market observers expect nat cat events that occurred in the third quarter of 2017 in North America including hurricanes Harvey, Irma and Maria to result in record insured losses of around $100 billion.

“As a result of that we would expect also demand in these markets to show some signs of increase.”

Swiss Re itself has budgeted for $3.6 billion of claims from hurricanes Harvey, Irma, Maria, and earthquakes in Mexico. As a consequence, the reinsurer posted a net loss of $468 million for the first nine months of 2017 after a net income of $3.0 billion in the same period of 2016.

The significant nat cat losses come after several years of softening rates particularly in the property/casualty business due to overcapacity but also due to the absence of large losses. But after the third quarter, Swiss Re sees the market turning.

“We certainly expect price improvements across actually most lines of business,” Cole said. “Some lines and regions will probably be impacted further than others, but we actually expect increases across the board,” Cole noted.

“This also reflects the nature of the market where capital is fungible,” Cole explained.

Over the last couple of years price pressure particularly in the windstorm market in North America has increased significantly; some of the capital that supported that market looked for other places to be deployed and this had knock-on impacts on other markets, Cole continued.

Swiss Re has also over the course of the last couple of years experienced a continuous decline of overall pricing and pricing adequacy in the commercial primary market.

“This type of [nat cat] event typically is a catalyst for an inflection point,” Cole said. “Based on early discussions this is something we see now emerging,” he added.

Sign up to our free email newsletters

Other stories from Thursday's PM newsletter

Greenlight Re CEO sees no sign of rate improvements

Allstate Q3 market beat not sustainable: Credit Suisse

Don't miss our insurtech email newsletter - sign up today