NEWS
Retentions must rise, prices must increase in response to Ian and inflation
Priorities are increased pricing, new structures and, more specifically, higher insurance retentions, says Swiss Re.
The impact of Hurricane Ian underlines just how urgent it is to redress and adjust reinsurance structures, pricing and retentions as the industry moves toward the 1/1 renewal, Paul Murray, chief executive officer Reinsurance Asia, Swiss Re, told SIRC Today.
He noted Swiss Re had seen the “very prominent” impact of Ian in its Q3 results. He acknowledged that reinsurers have an important role helping society by absorbing volatility after big catastrophic events and helping create resilience—but he stressed that Swiss Re is a shareholder-owned company.
“We take these risks, and we suffer from losses periodically. But we need to make good money over a reasonable period of time. Ian underlines the importance of redressing the priorities as we go into the next renewal,” Murray said.
He said that while Ian represents a single severe event, the frequency of smaller and medium-sized events in the past few years causing an accumulation of losses is a concern for the industry. “Just this year, a number of records have been broken again.”
In Asia specifically, records have been broken in India and China this year. In Australia, this year’s catastrophic flooding has been deemed the costliest and the fifth biggest nat cat event to hit the continent. Hurricane Ian also broke records, he notes: its pace of acceleration before it made landfall was faster than that of any other storm previously.
“We’re in a world where the level of risk has increased materially, and we think that phenomenon is here to stay. So as we go into this renewal this needs to be reflected in the prices we charge,” he said.
“The industry is being affected by specific types of inflation.”
Paul Murray, Swiss Re
Priorities
Murray described the priorities for Swiss Re at this year’s 1/1 renewals as “quite simple”. They cover increased pricing, new structures and, more specifically, higher insurance retentions.
Inflation has not been adequately factored into retentions in recent years, he said, and this must now be addressed. As well as inflation in many economies reaching highs not seen for decades, the industry is being affected by specific types of inflation particularly relevant to re/insurance such as higher construction costs, building replacement costs and material costs.
“Retentions need to increase a lot more than just the rate of inflation because of the way the structure operates,” he explained.
He acknowledged that discussions with insurers around this could be “hard and painful”.
“But we will prioritise our long-standing relationships and work hard to stand with them. We will provide them with capacity first but we must have the conversations about price and retentions.
“We anticipate detailed discussions first about terms and conditions that work. But there’s no doubt there will be significant pressures in the market—more than there has been for 10-plus years.
“People will be disappointed, there will be frustration and it’s highly likely there will be uncovered risks at the end of the renewal, the way things are looking,” he said.
“This renewal will be tough but it’s been tough for reinsurers for many years. This is the time when it’s appropriate to redress the balance,” he concluded.
Main image: Shutterstock / Champ008
