Swiss Re’s Reichelt flags potential impact of Japanese typhoons on ILS alternative capital
Swiss Re’s Frank Reichelt, head of Northern, Central & Eastern Europe, said he is “always an optimist, and with that I hope we see some positive developments in the upcoming renewals season”.
But highlighting the recent typhoons in Japan he added that looking at the market, these events “will affect results in that area”.
“The question is, will this spill over to areas that have no losses?” Reichelt mused to Baden-Baden Today. “This week will give some answers,” he added.
Reichelt said the spillover has not happened in the last two or three years. Markets that suffered losses reacted on reinsurance prices, while other areas which were relatively loss-free, such as Europe, didn’t react, he explained.
However, he said, it could be different this time because this will be the third year in a row for the reinsurers that have been heavily affected by larger events.
“As we know, it has already led to reactions in the areas affected. We know it will increase the costs for retro, the reinsurance that reinsurers buy themselves.
“Swiss Re is nearly independent of this however as, with some exceptions, we don’t buy retro. Therefore we are unattached to that.
“Other reinsurers have a different approach and buy significant amounts of retro, which will be affected by the large losses or have been affected in the last few years, so the covers for those will increase.
“That means the costs at your outwards business will increase and this usually needs to be earned in the incoming business it’s a very simple connection,” he explained.
Reichelt said he expected that the alternative capital ILS markets will be hit by natural catastrophe events in Japan, “or you could say, will be hit again for the third year in a row”.
“The last two times this happened, the alternative capital was quickly reinstated in a way. On the one hand we know there is plenty of capital out there in the world, there’s no shortage of capital, but on the other hand we also know that investors might reconsider their investment after they have suffered losses for three years in a row,” he said.
“They will either get their capital somewhere else or they will charge higher prices for their capital. These different impacts together could have an impact on European business.”
He added that less take-up in alternative capital will mean less competition and less capacity, but there will be no capacity shortage.
“That would be nice in a way from a reinsurer’s point of view: less capacity in the market would have a certain impact on prices. I don’t see a significant change there to what we have here,” he concluded.
