keith-wolfe-swiss-re
Keith Wolfe, president of property & casualty, US at Swiss Re
21 October 2019 Insurance

Transitioning US market means opportunities: Swiss Re

The US market is in a period of transition, and Swiss Re is helping its primary insurance clients navigate this changing environment by helping them plug gaps in coverage and open up new opportunities, Keith Wolfe, president of US property & casualty, told APCIA Today.

“We look for opportunities to engage our clients in a robust dialogue around how they operate their business and what they want to do strategically going forward,” Wolfe said.

“Ultimately we try and do something with them that adds a lot more value than just a reinsurance contract. For example, with private flood, we see an enormous gap in the amount of insurance that is deployed in this space compared to the risks that exist in the US market.

“We are trying to add value to our clients’ portfolios by helping them add a product such as flood to their core offerings. We heavily reinsure that to help them get started, and ultimately that helps a lot more people who have true flood risk to get insured.

“This means that when we have large events like Hurricane Harvey in Texas—which was a pretty significant flooding event—we don’t see such a large gap between the economic loss and the insured losses.”

Two years of severe cat events have been responsible for some of the various pressures in the US market, including loss creep and trapped capital on collateralised deals. One extreme example of loss creep has been the increased adjustment expenses following loss events in Florida, said Wolfe.

“That was driven by a handful of factors including multiple things happening at the same time, creating a huge crunch on the number of adjusters that were available, and affecting the timeliness with which they could get to sites after events occurred,” he said.

“There was also considerable delay in reporting, so there was a lot less evidence that people were quickly recording their claims.

“Because of that delay, the amount of loss costs that the industry estimated for some of the events was significantly under-reported in the beginning and in time it ended up being a much larger figure.”

Other stresses highlighted by Wolfe include wildfire, the significance of which he believes is underappreciated by the industry.

“The industry is probably still not as comfortable in this area as with most of the other cat perils, which are well known and modelled through many years of experience,” he said.

He highlighted the significance in the US of a large number of relatively small tornado and hail events, the impact of which can also be underestimated by the industry.

“These storms are typically modest compared to losses from hurricanes, wildfires or earthquakes, but they add up considerably to a fairly large figure over time,” he said. “A lot of these are held net by insurance companies.

“They are much stronger companies than they were five or 10 years ago, therefore with those strong balance sheets they buy a little less reinsurance and ultimately, when some of these small-to-modest events happen, they create a lot of loss that is retained in the primary insurance community and doesn’t actually make its way to the reinsurance market.”

Another theme he noted in the US market is a significant increase in litigation settlements.

“We’ve seen a trend over the last five years where the top 50 settlements for liability cases have doubled. It’s a pretty disturbing trend and we are not seeing anything to indicate it will change or reverse any time soon,” Wolfe said.

He added that commercial motor is one of the more difficult areas of business in the US: there is significant rate movement in the primary market, with double-digit rate increases.

“These are trickling through in some cases to the reinsurance market, but that rate increase is not keeping up with the loss trends in that category,” he concluded.

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