Keith Wolfe, President of P&C in the U.S. for Swiss Re, explains why the current reinsurance environment demands a rethinking of rates, as well as clarity on T&Cs.
What’s your assessment of the current market for reinsurance in the U.S. with regard to demand, pricing, terms & conditions?
In terms of pricing, we’ve reached an inflection point in the P&C environment. Industry profitability must be supported by higher rates to address several years of increasing loss activity across a range of classes of business and the yields falling to unprecedented low levels. The last few years of social inflation also compounds this challenging environment.
We have seen some tightening of terms and conditions in contracts, mostly to add clarity where there was ambiguity. A recent example of this would be the broad application of infectious-disease exclusions to reinsurance agreements.
What are you hearing from clients, and (without giving anything away, of course) what were discussions like at 1/1 renewals?
We’re seeing some pretty significant changes in terms of pricing in the primary market and also a tightening of terms & conditions. The knock-on effect is that these are starting to also be reflected in reinsurance agreements. Throughout 2020 this rate trajectory has accelerated, in both Casualty and Property. The drivers of why may be a little different, but the general trend is the same.
For 1/1, we’re seeing a higher volume of submissions coming in than we were at this stage last year. That’s obviously being informed by everything that has gone on over the last 12 months or so. Broadly speaking, last year, those that worked well in advance of renewal dates tended to land with more sensible terms as a buyer. Waiting didn’t unfold well, and people remember that.
How has the advent of the pandemic shaped the way Swiss Re views the U.S. P&C market?
One of the main takeaways from the pandemic has been that it has really underlined the need for clear terms & conditions. No one wants to find out they are unclear on what is and isn’t covered. That doesn’t help anyone.
In the U.S. market, we’re fortunate that most language in primary policies is broadly standardised. As an example, the language around business interruption in the U.S., in the vast majority of cases, is quite clear in terms of whether something is or isn’t covered in relation to COVID. The European market is not as fortunate, and in primary and reinsurance contracts there is some language that is currently being worked through. We don’t ever want to find ourselves in a position where we are fighting over unclear language that could have been made clearer up front. Nobody likes surprises.
What’s your current strategy for ensuring Swiss Re’s exposure is “right-sized” for growing risks such as natural catastrophes (particularly in terms of frequency of events)?
I think at Swiss Re we’ve always prided ourselves on our disciplined underwriting approach to ensure we’re not overweight in certain lines of business. Of course, when you are in this industry you don’t always get it right all the time, but I think we’ve shown that over the long term we’re very prudent with what we choose to write and what we don’t.
I think we have improved our ability to react to new opportunities and new risk pools to generate smart growth for us and our clients. We’re a very large company, so we’ve tried to streamline some processes to allow us to be a little more nimble so we can target areas that are underserved by the industry as a whole. Something that is really helping us in this ambition is data analytics. With the size and scope that we have there’s a lot of knowledge and information that sits inside our four walls that in the past maybe wasn’t always being utilised.
How do you see Swiss Re positioned in the U.S. market as 2021 approaches, and what challenges lie ahead?
We expect there will be a flight to quality and that strength of balance sheet will matter. The model of diversification by line of business and by geography will also continue to be important. Although COVID-19 has challenged that model to a degree – with large impacts on P&C, L&H and the asset side – we would expect diversification will continue to help mitigate volatility long-term and we feel we are positioned well.
We continue to support our clients in all the core ways you would expect but we also realise that we’re in a time where insurer profitability is challenged so we have a team that we call our ‘Solutions’ team that is there to work with clients to open up new risk pools or revenue opportunities that they maybe weren’t thinking about before. Essentially, we think about where there’s an underserved part of the market where we may have superior knowledge, data, analytics or a combination of those things that can help serve that space.
So a couple of examples of what we’re doing there would be around our flood offering and our data analytics expertise.
For flood, it wasn’t so long ago that it was viewed as an “uninsurable” risk by the industry. But that is all changing due to technological improvements in areas like mapping and modelling. Insurers can now underwrite that peril with much greater confidence. And with five out of six households in the U.S. not carrying flood insurance, this represents a tremendous untapped opportunity. Over the past couple of years we’ve closed dozens and dozens of deals but the market is still in its infancy. There is a lot of room for growth.
This story was originally published in Reactions.
