Scarcity of profits and ‘fear factor’ to drive rate hikes, says Swiss Re CEO

Corporate insurance rates are enjoying healthy rate hikes, which should put Swiss Re Corporate Solutions back on track after some difficult years, and reinsurance rates are seeing smaller increases—but the overall outlook for the industry is a positive one.

That is a summary of the thoughts of Christian Mumenthaler, the group chief executive officer of Swiss Re, speaking to Monte Carlo Today from his office in Zurich the week before this year’s Rendez-Vous. “I am optimistic about the future,” he said.

Rate increases in the corporate space are increasing, and he anticipates a further acceleration in the next 12 months.

“This is very much needed because claims trends are eating up part of these price increases. Hopefully, the corporate insurance sector is moving towards a healthier state,” he said.

On the reinsurance side of the business, rate increases have been smaller over the past two years, but they are occurring with more pronounced increases on loss-affected regions and programmes and on the nat cat side, he said.

Overall, he estimates that most global reinsurance books have seen a small quality improvement of around 1 percent. “A continuation of this trend is necessary for a healthy, long-term sustainable reinsurance market,” he said.

Supporting this trend, Mumenthaler points to what he calls “the fear factor”, which could drive higher prices in loss-affected areas.

“If we have again very large claims this year, I think a lot of people would be quite worried. There is a momentum now towards rate increases. Typically, momentum like this stays in place for a while,” he said.

Potentially countering this is the high level of capacity in the market. He feels it is clear that, because of the low interest environment, a lot of capital has entered the reinsurance sector.

“Some alternative capital has retreated a little bit after 2018, the second big nat cat year in a row, but this doesn’t mean it is going to continue like that. This capital has accumulated in the market and traditional players still have capital,” he said.

“There is no scarcity of capital, but there is a scarcity of profit. If most of the profits come from reserve releases from good years, everybody knows that it’s not sustainable. That creates pressure, no matter how much capital you have in your balance sheet.”

Against this backdrop, Mumenthaler is “very optimistic” about Swiss Re’s reinsurance business, which is the oldest and largest part of the company.

“We describe ourselves as a risk knowledge company, which invests in the risk pools, so we make sure we have access to risk,” he explained.

“Life reinsurance is doing really well. In P&C reinsurance we have some clear strategic advantages, such as our very large scale and efficient capital base because we diversify with the life and health business. We have privileged access to clients all over the world, long-term relationships, and all the risks knowledge we’ve built up over time.

“In this slightly improving rate environment we are deploying these assets and I’m quite optimistic about that.”

Good prospects
Mumenthaler admits that the corporate insurance market was “hit harder by the soft market, it saw some losses”. But with solid rate increases coming through he is also optimistic about this unit’s prospects.

“Our Corporate Solutions business is in a ‘fix it’ mode. We gave them until 2021 to fix the book and cut back some business, cut back some costs, but also obviously aim for higher prices, so that we would get back to something more sustainable,” he said.

The reinsurer is also building up its digital insurance platforms business within the third business unit, Life Capital.

“The biggest part of this unit is ReAssure in the UK, where the plans for an initial public offering remain on ice—for now,” he said.
Next to ReAssure, Swiss Re also has its open digital businesses, a white label digital insurance platform named iptiQ. This platform can be used by any brand name, including insurance companies, to sell insurance products digitally.

“Many companies would need to invest hundreds of millions to become digital, and not all can afford that. So iptiQ is a facilitating platform, and we have more than 20 partners using it at this stage and many more will join. We’re very bullish,” Mumenthaler said.