INTERVIEW: MIKE MITCHELL, SWISS RE

The hurricane capacity mismatch

A significant increase in demand is on the horizon in the North Atlantic hurricane market, but there’s likely to be discord between supply and demand, says Mike Mitchell of Swiss Re.

Explaining the hurricane risk outlook to Monte Carlo Today, Mike Mitchell, head of property and specialty underwriting reinsurance at Swiss Re, said that the increase in demand will be driven by the inflation that is flowing through into some insured’s valuations.

“At the same time, in traditional capacity, several players have pulled back from the space. The non-traditional sources of capital have also started to retrench somewhat. I think we’ll see a supply:demand mismatch coming into the North Atlantic hurricane space. This is going to be a quite interesting and challenging dynamic for everyone to absorb,” said Mitchell.

Swiss Re also sees a need for modelling adjustments on secondary perils such as flood, droughts, and storms because of climate change as well as urbanisation, growing populations and the accumulation of economic wealth in disaster-prone areas, but is expecting this to improve soon.

“We’ve definitely seen that the attachment point of programmes hasn’t moved up as quickly as the underlying exposure value of the last several years. Now that this has coincided with actual loss experience, that’s going to put pressure on reinsurance programmes to move up,” he added.

More generally on climate change, Mitchell said that the industry needed to figure out the right balance between being offensive and defensive in terms of adaption and mitigation, alongside the role the industry needed to play in finding this balance.

He added that decarbonisation was clearly a huge theme for the re/insurance industry.

“How can the industry best pivot to ensure we are putting our best foot forward from a sustainable underwriting point of view and also supporting the energy transition in decarbonisation in a more active way?” Mitchell asked.

Watch the full interview here

“There’s a whole raft of underlying themes that need to be brought more sharply into focus.”
Mike Mitchell, Swiss Re

Risk factors

Mitchell explained that inflation is currently the “most pertinent” risk factor to the industry. Swiss Re is spending a lot of time and energy “to understand from our clients’ perspectives what exposures are impacted by inflation flowing through and how that affects their reinsurance needs, how it affects the exposures and the appropriate price levels for the capacity you’re deploying there”, he said.

He added that Swiss Re is carefully watching social conditions as inflation and pricing increases, along with supply chain disruption, flow through into the lives of individuals.

“We believe that this is an enhanced risk environment for social tension and the associated potential for strikes, riots and civil commotion exposure,” warned Mitchell.

“There’s not enough of a focus from the market appreciating how bad that can be and understanding what needs to be done to bring those sorts of accumulating exposures under tighter control.”

Citing the 2021 South African riots as an example, Mitchell said that there was a market loss of approximately $2.1 billion, according to Swiss Re Institute estimates.

“That’s a small economy if you compare it to France, the UK, or even the US. It’s in those markets we’re going to see an enhanced risk environment. There is a potential for large losses in that space,” he said.

Mitchell expects discussions at the 1/1 renewals to address all these factors, noting that “there’s a whole raft of underlying themes that need to be brought more sharply into focus” in the industry.

“I do believe it’s a great moment for us to take stock and think about the long-term sustainability of the products we have in the original marketplace where we can generate opportunities for growth, and to understand what’s the best balance of risk and return between the various players in the industry,” he concluded.

Mike Mitchell is head of property and specialty underwriting reinsurance at Swiss Re.

Main image: Shutterstock / FotoKina