Risk appetite is key to a smooth renewal as demand grows: Swiss Re CEO P&C Re

Swiss Re grew its book by 8 percent in the mid-year renewals, with gains predominantly coming in nat cat, property and specialty businesses. It is more cautious on some parts of casualty, especially in the US where litigation costs continue to soar but, overall, the market has found an equilibrium after the turbulence of recent years.

That is the view of Urs Baertschi, chief executive officer, property and casualty reinsurance for Swiss Re. Speaking to Intelligent Insurer, he said that while demand for reinsurance is up, the supply of capital is sufficient and stable. 

“The dynamic is more about risk appetite,” he said. “The risk landscape keeps evolving; reinsurers and cedants are adjusting to a new reality in terms of the frequency and severity of events.”

He explained that the way insurers and reinsurers share risks has evolved in the past two years. Cedants have increased retentions, absorbing more of the costs associated with the frequency of events. The role of reinsurers has evolved to deal with events that trigger volatility for clients. 

“We’re living in an age of multiple crises, and that leads to heightened volatility and uncertainty—whether it’s geopolitics or macroeconomics, climate change, energy, or the supply chain crisis. Everything is happening at the same time,” Baertschi said.

“Of course, insurance companies don’t like that volatility and uncertainty. That is why we’re seeing higher demand for more protection. We are focused on meeting our clients’ demands and needs in what is an evolving risk landscape and bringing our knowledge to our clients.”

He makes the point that some risks are more connected now than in the past. Natural catastrophe risks, for example, can become higher due to the upward pressures of litigation and inflation and their impact on things like supply chain and infrastructure.

“If you consider the fallout from a natural catastrophe, there’s a ripple effect that can increase costs in a number of ways. The liability environment in the US and heightened litigation activity is impacting this market significantly,” he said.

“But equally there are emerging risks around technology and generative artificial intelligence (AI) that we’re probably only starting to understand in our industry.”

He describes the litigation environment in the US as very challenging. “We’re taking a cautious stance to it. It has become quite unpredictable as to what the costs are, not just to insurance companies, but also to society. 

“In effect, a tax is being placed on society that people feel in their everyday lives, whether it’s at the gas pump, or in the grocery or home improvement store. It is becoming meaningful.”

Preventing losses

Baertschi says there is no substitute for understanding the underlying risk. The reinsurance industry can offer more value than simply paying claims—it can also help prevent losses, he notes. 

“Out of awareness comes risk mitigation.”

“We spend a lot of time working with other stakeholders, such as the public sector, on risk mitigation. Out of awareness comes risk mitigation. Only after that do we really talk about risk transfer. Natural catastrophes are increasing in frequency and severity, which means the protection gap also keeps growing,” he explained. 

“Some $170 billion of economic losses stemming from natural catastrophes occurred last year, which were not insured. With more awareness and risk mitigation, we can start addressing some of this protection gap.”

One part of the solution, Baertschi says, is the use of data and technology—of which reinsurers in particular have so much at their disposal. 

“At Swiss Re we make our knowledge and data available to our clients through our solution suites, through our advice, through the underwriting and risk transfer we bring to them. 

“We have many discussions with our clients about what’s important to them, and we listen. Whether it’s around product development or risk transfer, knowledge, or data we want to help our clients. 

“Sometimes it’s more knowledge-based, where we deploy some of our solutions that they can use in their own operations, either on the underwriting side or to be more efficient operationally,” he said.

This approach leads into the use of AI. Baertschi acknowledges that many parts of the industry will benefit from the use of AI, including speeding up claims management, fraud detection, and faster underwriting. But he warns of potential downsides, saying: “You need to be careful of not introducing additional bias, especially in underwriting.”

The reinsurance industry should be better at communicating the importance of its wider role in society, he says. 

“Reinsurers paid in excess of $150 billion in claims to insurance companies last year. That money all trickles down to society in a very positive way.

“Our clients take those payments and in an efficient manner are able to provide that benefit back to their end customers,” he explained. “Reinsurers are a very important part of that value chain. We are the principal shock absorber that allows insurance companies to provide an efficient product to their end customers. 

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“In addition to that, we are a source of data. We see a lot of different things around the world, and we can bring that back to benefit our customers. Using that data in aggregate we work together with the public sector to think about how can we do things better in the future. How can we mitigate some of the risks and address the big problems that lead to the growth in the protection gap?”

As the Monte Carlo Rendez-Vous kicks off, Baertschi is in a bullish mood. “I think there will be a smooth renewal but Monte is the kick-off to the big conference and renewal season and it’s still very early. A lot of things could happen. 

“We are in a very active hurricane and tropical cyclone season, and earthquakes don’t have any seasonality. We’ll see what happens throughout the rest of the year, but we look forward to engaging in a dialogue here with our clients and business partners and throughout the rest of the renewal season,” he concluded. 

Urs Baertschi is the chief executive officer, property and casualty reinsurance at Swiss Re.

For more news from the Rendez-Vous de Septembre (RVS) Click here.

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