Don’t innovate for the sake of it: Swiss Re

Innovation must be carefully considered and the right products identified—not just for the sake of it—if the desired results are to be achieved.

That is the opinion of Bill Donnell, president of US P&C, managing director Americas, Swiss Re, who said that problem-solving must not be confused with innovation.

Speaking to PCI Today, Donnell said: “Typically our clients haven’t looked towards the industry to be innovative. However, our view on innovation isn’t innovation for innovation’s sake, but about solving problems. Instead of struggling with a set group of products, we achieve innovation by listening to the clients and trying to solve their issue, which forces us to come up with new solutions.”

Donnell said that the logic and rationale behind any reinsurance purchase must first be identified, before thinking about how to structure—or restructure—a client’s reinsurance portfolio.

“Some clients need reinsurance to reduce volatility, some to protect their balance sheet from capital management and some for efficiency. Identifying which of these areas they’re trying to solve is the first step,” he said.

“For example, if a client wants to protect volatility, they might be looking for a basic structure but a competitive price and big capacity from a financially strong reinsurer they trust. So, rather than give them a complex structure that combines capital markets solutions and traditional reinsurance, we give them what they want.

“But on the other side, there are clients who are actively seeking these complex structures using a combination of products and lines. So for us, innovation is about identifying the client’s needs and delivering a solution which is exactly right.”

Speaking of the trends in the market, Donnell said that the biggest challenges could be attributed to three main things.
“The first is the reauthorisation of the Terrorism Risk Insurance Act (TRIA), which is something that needs to happen in the next 60 days.

“The second is how do we grow? We’ve had two good years of results and when you have good results you want more of the same, so how do we grow and where do we grow?

“The third is the continuing evolution of alternative capital,” he said.

Donnell said the conversations around alternative capital are increasingly sophisticated and mature. He added that there are evident differences around the way in which talks are being carried out.

“Alternative capital is no longer just a headline,” he said. “In my view it’s just capital that is trying to find its way into our industry and the conversations around how reinsurers respond to that are much more sophisticated.

“My view is not what do we do to respond to the great wave of alternative capital, but how do we position ourselves to be even more successful going forward?”
Donnell explained that the dynamic in the market was now a test of staying power. Those that will be successful will be those that provide value to clients and who have a track record of delivering on the promise to pay, he said.

“At Swiss Re, our thoughts are around how do we make our offering even stronger, because we have a different value proposition than others in the market. The way we do that is by speaking to our clients and understanding what the problem is; we try to solve a problem over just selling a product,” he said.
Donnell said that issue of cedants retaining more was also high on the agenda.

“The issue of retentions is part cyclical and part structural,” he said. “We’ve always had ebbs and flows of buying more or less reinsurance and that’s the cyclical part, but the structural part is focused around clients that have chosen to take higher net retentions and will always have higher net retentions.”

Returning to the reauthorisation of TRIA, Donnell said that it is at the top of the list for Swiss Re. He added that he was surprised more reinsurers hadn’t been seen to campaign for its reauthorisation.

“Each year Swiss Re picks a few topics and tries to act as a leader, and this has been one of those, as it’s a really important issue for our industry,” he said.
“TRIA is not just good for the industry, it’s good for the economy too, and I would have expected more engagement on that from reinsurers,” he said.