Bond market “very difficult”, alternative capital not so interested: Swiss Re CEO Mumenthaler


    The natural catastrophe reinsurance market currently remains “very difficult,” according to Swiss Re CEO Christian Mumenthaler, who also noted that alternative capital is “not as eager” to enter as it used to be.

    Speaking during a press conference this morning, Swiss Re’s CEO explained that the reinsurance firm is adjusting its strategy.

    As we explained first thing this morning, Swiss Re showed continued strong appetite for catastrophe business during reinsurance renewal this yearwhile moving to higher levels of client programs.

    Speaking more broadly about the P&C reinsurance business, but still applicable to property and cat risks, Mumenthaler explained that: “Over time, as prices have softened, we’ve moved to a more proportional business, and with that update overall since the beginning of the year, you see a little undoing of it.

    “Inflation is the main reason and we believe that some of these prorated transactions we are not getting the rates we need to offset the inflationary pressures. We have reduced. This year it’s a small repositioning of the portfolio.”

    But specifically, the CEO said, “We’ve increased growth by 23%. We see it as a very attractive market, it’s very tough.”

    He added that “you read about a lot of reinsurers moving away from this.”

    Then in the insurance-linked securities (ILS) market, Mumenthaler noted that investor appetites still haven’t returned to what we saw a few years ago.

    “We see that alternative capital is not very eager to enter, also because there are now other sources of income in the financial markets at these rates,” he explained, referring to the change in the interest rate environment that other asset classes can make more attractive at potentially lower prices. risk.

    Despite this, Swiss Re itself continues to expand its use of alternative capital and believes that investors are still interested in the relatively uncorrelated returns that catastrophe reinsurance can offer them.

    Swiss Re is also working hard on its catastrophe risk models, updating them to provide the latest insight into factors such as climate change and the rise in losses the market is suffering from so-called secondary perils.

    Swiss Re CFO John Dacey said the reinsurer believes cat prices are adequate at the moment, which is “one of the reasons we’re comfortable growing this business”.

    He explained that these models mean that the latest perception of cat risk is factored into Swiss Re’s final price. “We’ve made important changes to our loss models that actually reflect the latest data on the potential impact of global warming on secondary perils: hail, flash floods, wildfires, and the prices we’re achieving reflect what we believe to be ‘is a higher peak of losses in certain jurisdictions associated with it.’

    Mumenthaler discussed the same issue, saying that the implications of secondary hazard losses are obvious.

    “The scientific consensus is really that climate change is visible in what are called secondary hazards, so we have more floods with drought, hail.

    “So that load has increased significantly, and you could already see it last year, you can continue to see it this year, so the biggest event this year was the flooding in Australia earlier in the year. It’s number one for us, of course, but there was also a heavy hailstorm in France. There was a flood in South Africa.

    “So there’s a lot of medium-sized events that come together in the first half of the year.”

    Mumenthaler added that at Swiss Re: “We’re capturing that, we’ve invested a lot in having on-roll models for secondary perils as well, capturing that and adapting to that. Part of what you saw me talking about the price increase is an adaptation of the model that we just did.”

    This suggests that some of the increased prices for Swiss Re’s cats in recent reinsurance renewals were intended to help the reinsurer cover its losses from secondary perils and climate change.

    Then, on the topic of whether climate change will make certain perils and regions less insurable, Mumenthaler said insurable risk will still be possible, but will become more difficult.

    “Yes, unfortunately, we will have to live with it. But that doesn’t mean insurance becomes impossible if it’s a natural next question.

    “I think the ability to insure is still a given, but it’s getting more expensive and certainly in rare cases where it’s a floodplain or something like that, there may be, you know, regions that become more difficult to insure.”

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