THORSTEN STEINMANN, SWISS RE
Buyers view reinsurance as an attractive and flexible option
A positive market environment makes the Swiss reinsurer bullish on opportunities and growth in three areas.
“I predict that the reinsurance buyers will ultimately come to the conclusion that reinsurance is not only more attractive and cheaper, but also much more strategic and also a very flexible solution.”
This is the view of Thorsten Steinmann, head of property & casualty reinsurance Northern, Central & Eastern Europe for Swiss Re. He was talking in the context of the reinsurer’s growth plans, also describing the current reinsurance market environment as “positive and attractive”.
He flagged three target areas where Swiss Re wants to grow the business in the longer term: core business, transactions, and solutions.
Steinmann says he plans to build on the solid foundation of the company’s performance at a group level, which has been good in the first six months of the year. He adds that he’s seen the same positive performance in his own regions.
However, he is not complacent about good market conditions, adding: “We know how volatile the business is. A couple of large cat events or other events can change the picture. That said, everything is on track at the moment.”
Under the growth strategy, which looks beyond this year’s renewal season, Steinmann says he expects that more reinsurance will be bought in Swiss Re’s core business area.
“Our estimate is that in EMEA between €4 billion ($4.2 billion) and €5 billion of additional nat cat limit will be purchased at 1/1 2024. On the nat cat side there’s a lot of growth opportunities for the reinsurance market, including for Swiss Re.”
An attractive option for buyers
Swiss Re’s growth plans are not limited to nat cat, Steinmann says. For the transactions business, which he defines as capital management transactions, he also sees big opportunities.
“If I put myself into the shoes of a reinsurance buyer, I would compare capital costs with the cost of reinsurance. With the higher yields elsewhere, capital costs have definitely increased over the last few years. So it’s just a comparison: ‘Do I buy more reinsurance, do I hold the business on a net basis, or do I go elsewhere?’.
“I predict that the reinsurance buyers will conclude that reinsurance is not only more attractive and cheaper, but also a good strategic option which is flexible as well.”
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“A couple of large cat events or other events can change the picture.”
Thorsten Steinmann, Swiss Re
Staying on the topic of the transaction business, he says that there are always two areas to consider: prospective business; and retrospective deals.
“When you think about the forward-looking, prospective part, I believe with increases in retentions in cedants we are seeing more requests for frequency protections. And there are certain structures we can offer our clients, where we can protect against frequency.
“Then on the retrospective side, we would look at loss portfolio transfers and adverse development covers. These allow you to free up capital from your existing book of business in order to grow your prospective book. I think more can be done in Europe, and we are in the market for this type of business.”
His third area of focus for growth, called solutions, is often based on data-driven solutions the reinsurer can offer to its clients. It includes products such as CatNet and solutions devised by the company’s P&C analytics team, as well as a new tool called Rapid Damage Assessment.
“Ultimately, on the solutions side, it’s all about growing the underlying book of our clients. We benefit from that as well, helping to improve the loss ratio and the underlying performance of our clients,” Steinmann says.
But he was candid in acknowledging there are potentially natural barriers to these growth ambitions.
“Obviously, every growth opportunity comes with a price tag. We want to get adequate returns on the capacity and the capital we deploy, but those are more the natural barriers we see in almost every single renewal.”
Trends to watch
Even with plenty of opportunity for growth there are other trends Steinmann is watching carefully—with some caution.
The impact of secondary perils is one example of this. While he describes the hit to the reinsurance industry this year from secondary perils (including flash floods and hail) as “digestible so far”, he adds that he has seen an uptick in non-nat cat large fire losses.
In addition, combined ratios in the motor market have been above 100 percent for nearly every country in EMEA, which he says was “not good”.
“With the increase of attachment points our clients are taking more care of the attritional losses.”
Losses inevitably influence sentiment in the reinsurance industry, he says, and in the past six to 10 months there have been a number of medium-sized nat cat events, mainly coming from what can be called secondary perils. These included flood losses in Slovenia, which hit the local insurance industry hard and to some extent reinsurance, as well as Storm Hans in the Nordics, and hail events in Germany and Austria.
The increase in large fire losses has been part of a longer trend, he says. “We cannot pin it down to one single industry, it is across almost all industries, but what is obvious is that the business interruption part is becoming more expensive, which is still related to current supply chain disruptions.”
In the EMEA motor market, the German insurance market is one of the largest. “The estimate for the German market goes in the direction of 106 to 107 percent combined ratio, which is obviously not good. This is mainly driven by higher inflation and higher loss trends in this line of business.”
But in spite of the volatile market, Steinmann is optimistic about this year’s January renewals. “For the upcoming 1/1 2024 renewal, we will not talk just about price, we will continue to talk about which part of the value chain in our industry is covering which losses.”
He says that until last year, the majority of the cat losses were covered by reinsurance, even the attritional ones. That has since changed, as terms and conditions have changed, and deductibles in particular have increased.
“The reinsurance industry is there to be the shock absorber for the large events, for the large losses, and with the increase of attachment points our clients are taking more care of the attritional losses. This is a trend that we expect to continue into next year.”
This renewal will also see questions asked about whether the underlying business for large fire losses is adequately priced.
However, he says, while renewal discussions are always hectic, the reinsurance industry is “very resilient”.
“Our industry has been the shock absorber for many years now. But there’s one thing that we need all to jointly work on: closing the protection gap. We have not made enough progress in the last few years. So let’s continue working on that overall mission—to close the insurance gap,” he concludes.
Thorsten Steinmann is the head of property & casualty reinsurance Northern, Central & Eastern Europe at Swiss Re.
Main image: Shutterstock / YAKOBCHUK VIACHESLAV
