Swiss Re bullish on market outlook, expects rate hardening to continue across all lines
Swiss Re expects further rate hardening across all lines of business at the upcoming renewal season, pointing to a positive re/insurance growth outlook with improving demand and growing exposures.
The reinsurer expects prices to continue to increase driven by the combination of lower interest rates, large claims and growing risks, which is likely to generate more opportunities for re/insurers.
At the same time, the reinsurer expects there to be increased pressure on underwriting fundamentals, such as risk selection and costing, portfolio steering, appropriate terms and conditions, and contract wordings, to deliver profits. However, noted that a shift to a more scientific, technology-driven approach will continue to strengthen underwriting. Rate improvements have been seen in many markets, particularly in loss-affected segments, the reinsurer noted, but further price increases across all lines of business are needed to improve the industry’s profitability.
Major catastrophes such as hurricanes are frequently affecting areas where exposures have grown as a result of wealth accumulation, leading to increasingly severe losses, as demonstrated in the past few years. Swiss Re said that 2020 is forming up to be no better. The current Atlantic hurricane season is the first on record to see nine tropical storms forming before August and 13 before September. The situation is further aggravated by the higher frequency and severity of secondary perils, such as floods and wildfires, leading to rising claims and highlighting the need for insurance protection.
According to Swiss Re Institute, to achieve a reasonable return on equity through 2021, non-life insurers in G7 markets need to improve underwriting margins by as much as 7-12 percentage points to compensate for lower interest rates.
Overall, the reinsurer expects the non-life insurance market to continue to grow, driven primarily by exposure growth, in addition to the general awareness triggered by COVID-19, of the danger of being uninsured and the increasing frequency of weather-related events. Swiss Re Institute forecasts a global growth rate of 3.3 percent in real terms for 2021.
Moses Ojeisekhoba, Swiss Re’s chief executive officer reinsurance, said: “Even before the COVID-19 crisis, most major markets were operating at below-average profitability. To be able to address the growing need for insurance protection in a sustainable way, further price increases across all lines of business are clearly needed."
