Swiss Re flees proportional covers to side-step inflation

Swiss Re continues to move out of proportional reinsurance towards excess of loss, a move officials claim has done wonders to protect the group from the rising claims costs and inflation that have spun beyond control of primary carriers.

“We felt in January and also through the year, that some of the prices we get in proportional do not reflect the full risk of inflation,” CEO Christian Mumenthaler told his company’s Q2 earnings call.

“We deployed 10% more capital year to date … but to the non-proportional side, a reflection of the market hardening.”

A decision to reduce European motor proportional treaty in H1 is “paying off” as primary carriers aren’t able to enact the immediate price increases necessary to keep pace with inflation, he noted.

Working from construction prices as an example, chief underwriting officer Thierry Léger cited the dangers to primary market carriers from the “relatively fast” move in inflation in 2021.

“Then it is clear that it is going to take the primary industry twelve months to get ahead of the curve,” Léger said.

“When you look at this from the reinsurance perspective and you have different ways to deploy capital, that is not necessarily where we decided to be,” he said.

The vast bulk of  Swiss Re’s proportional treaties, about 80%, do often carry inflation protections such as sliding scales, although the current inflation readings have gone well beyond the ranges provided by such mechanisms, he said. Social inflation stacks separately, he added.

“Of course, we reduce more on those books that don’t have such protections.”

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