Swiss Re expects demand for natural catastrophe cover to double in high-growth markets and to rise by around 50% in mature markets by 2020
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- Reinsurance demand to cover natural catastrophes is expected to double in high-growth markets and to increase by 50% in mature markets by 2020
- Nat cat pricing rates are experiencing decreases, but are expected to stabilise in 2014
- Inflow of alternative capital poses a threat to less diversified and smaller reinsurers
- Swiss Re's business model is not challenged by increased competition from alternative capital
Swiss Re expects the demand for natural catastrophe reinsurance to double in high-growth markets and to rise by around 50% in mature markets by 2020. Alternative capital is focusing on peak exposures in the US nat cat markets where entry barriers are low and margins high. Swiss Re estimates that prices for nat cat covers will stabilise in 2014 after a decline this year. With clients looking for more than just capacity, Swiss Re is well positioned to take advantage of its full service business model.
Group Chief Executive Officer Michel M. Liès says: "Through a shared history of 150 years, we have learned first-hand how important it is to bring expertise and staying power to our clients so they can cope with the many changes and challenges that evolve over time. Differentiation through tailor-made solutions, a client-centric service model and expertise makes our business model less vulnerable to increased competition from alternative capital."
Swiss Re benefits from a combination of its capital markets expertise and its full re/insurance service model
Amid the continued low yield environment, alternative capital continues to enter the re/insurance market in search of attractive investment opportunities. 70% of this capital focuses on US natural catastrophe risks while other business lines are less affected. Swiss Re estimates the amount of alternative capacity today at around USD 40 billion worldwide. Alternative capital has the highest share in the US nat cat market where it is comparable to what it was immediately after hurricanes Katrina, Rita and Wilma. Alternative capital still needs to be tested in case of increasing interest rates or large losses from natural disasters.
These changing market dynamics are expected to be most challenging to less diversified reinsurers.
"We take the inflow of alternative capital seriously, but we are not alarmed by it. Swiss Re can take advantage of its capital markets expertise and – at the same time – compete successfully as a full service provider," says Swiss Re's Group Chief Underwriting Officer Matthias Weber. "Smaller, less diversified reinsurers, however, will be under significant pressure," Weber adds.
Growth by differentiation, knowledge and innovation
Swiss Re sees continued growth of exposures over the coming years, as the economic outlook which includes the mature markets improves. Demand for nat cat re/insurance is expected to double in high growth markets and increase by approximately 50 % in mature markets by 2020. At the same time, Swiss Re will focus on providing innovative product solutions and underwriting expertise to support clients.
"Especially in today's connected world, risk transfer is getting more complex. Being able to deliver tailor-made solutions to your clients for very different and challenging scenarios will be a key differentiator to succeed in the market," says Christian Mumenthaler, CEO Reinsurance at Swiss Re. "We provide a truly global client service model with in-depth expertise and risk knowledge transfer."
Stable pricing trends expected at upcoming renewal season
Although prices for nat cat covers are expected to decrease in the short term, Swiss Re expects them to stabilise in 2014. The US liability insurance market is hardening. For other property & casualty segments, price trends are expected to remain stable.
The Swiss Re Group is a leading wholesale provider of reinsurance, insurance and other insurance-based forms of risk transfer. Dealing direct and working through brokers, its global client base consists of insurance companies, mid-to-large-sized corporations and public sector clients. From standard products to tailor-made coverage across all lines of business, Swiss Re deploys its capital strength, expertise and innovation power to enable the risk-taking upon which enterprise and progress in society depend. Founded in Zurich, Switzerland, in 1863, Swiss Re serves clients through a network of over 60 offices globally and is rated "AA-" by Standard & Poor's, "A1" by Moody's and "A+" by A.M. Best. Registered shares in the Swiss Re Group holding company, Swiss Re Ltd, are listed on the SIX Swiss Exchange and trade under the symbol SREN. For more information about Swiss Re Group, please visit: www.swissre.com or follow us on Twitter @SwissRe.
Cautionary note on forward-looking statements
Certain statements and illustrations contained herein are forward-looking. These statements (including as to plans objectives, targets and trends) and illustrations provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to a historical fact or current fact.
Forward-looking statements typically are identified by words or phrases such as “anticipate“, “assume“, “believe“, “continue“, “estimate“, “expect“, “foresee“, “intend“, “may increase“ and “may fluctuate“ and similar expressions or by future or conditional verbs such as “will“, “should“, “would“ and “could“. These forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause Swiss Re’s actual results of operations, financial condition, solvency ratios, liquidity position or prospects to be materially different from any future results of operations, financial condition, solvency ratios, liquidity position or prospects expressed or implied by such statements or cause Swiss Re to not achieve its published targets. Such factors include, among others:
- further instability affecting the global financial system and developments related thereto, including as a result of concerns over, or adverse developments relating to, sovereign debt of euro area countries;
- further deterioration in global economic conditions;
- Swiss Re’s ability to maintain sufficient liquidity and access to capital markets, including sufficient liquidity to cover potential recapture of reinsurance agreements, early calls of debt or debt-like arrangements and collateral calls due to actual or perceived deterioration of Swiss Re’s financial strength or otherwise;
- the effect of market conditions, including the global equity and credit markets, and the level and volatility of equity prices, interest rates, credit spreads, currency values and other market indices, on Swiss Re’s investment assets;
- changes in Swiss Re’s investment result as a result of changes in its investment policy or the changed composition of its investment assets, and the impact of the timing of any such changes relative to changes in market conditions;
- uncertainties in valuing credit default swaps and other credit-related instruments;
- possible inability to realise amounts on sales of securities on Swiss Re’s balance sheet equivalent to their mark-to-market values recorded for accounting purposes;
- the outcome of tax audits, the ability to realise tax loss carryforwards and the ability to realise deferred tax assets (including by reason of the mix of earnings in a jurisdiction or deemed change of control), which could negatively impact future earnings;
- the possibility that Swiss Re’s hedging arrangements may not be effective;
- the lowering or loss of one of the financial strength or other ratings of one or more Swiss Re companies, and developments adversely affecting Swiss Re’s ability to achieve improved ratings;
- the cyclicality of the reinsurance industry;
- uncertainties in estimating reserves;
- uncertainties in estimating future claims for purposes of financial reporting, particularly with respect to large natural catastrophes, as significant uncertainties may be involved in estimating losses from such events and preliminary estimates may be subject to change as new information becomes available;
- the frequency, severity and development of insured claim events;
- acts of terrorism and acts of war;
- mortality, morbidity and longevity experience;
- policy renewal and lapse rates;
- extraordinary events affecting Swiss Re’s clients and other counterparties, such as bankruptcies, liquidations and other credit-related events;
- current, pending and future legislation and regulation affecting Swiss Re or its ceding companies, and the interpretation of legislation or regulations;
- legal actions or regulatory investigations or actions, including those in respect of industry requirements or business conduct rules of general applicability;
- changes in accounting standards;
- significant investments, acquisitions or dispositions, and any delays, unexpected costs or other issues experienced in connection with any such transactions;
- changing levels of competition; and
- operational factors, including the efficacy of risk management and other internal procedures in managing the foregoing risks.
These factors are not exhaustive. Swiss Re operates in a continually changing environment and new risks emerge continually. Readers are cautioned not to place undue reliance on forward-looking statements. Swiss Re undertakes no obligation to publicly revise or update any forward-looking statements, whether as a result of new information, future events or otherwise.
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