Swiss Re: $100bn nat cat loss years are the “new normal”
Swiss Re’s Urs Baertschi has warned the industry that annual cat losses of $100bn per year should be considered the “new normal” following an estimated $50bn of market-wide losses during H1.
Baertschi, who serves as CEO for P&C reinsurance, told The Insurer TV he remains comfortable with Swiss Re’s nat cat risk appetite, but acknowledged there had been a shift in market dynamics over the past 18 months.
“There has been a rebalancing of how risk is shared between insurers and reinsurers, and price adequacy has moved up as well. We expect those trends to continue,” he said.
Baertschi played down concerns that this has diminished the relevance of the reinsurance sector.
“The reinsurance sector continues to be highly relevant to the insurance value chain overall, and the primary role of reinsurers is as a shock absorber.
“If you look at the earthquake in Turkey earlier this year, reinsurers were there to support their clients in helping societies to rebuild after that tragedy. That is the role of a reinsurer, whereas insurers are really better suited to pick[ing] up attritional losses.”
Baertschi said around half of all nat cat losses over the past 30 years have been derived from so-called secondary perils.
“They are called secondary because they tend to be smaller and more localised, but in the aggregate they are a very meaningful part of the natural catastrophe experience for our industry,” he said.
Baertschi said the frequency of these secondary events meant they were more attritional in nature rather than being about volatility protection.
“Volatility is what the reinsurance industry can pick up if it's a one-off every once in a while, but it happens all the time, it's attritional, and those losses are best suited for the [primary] insurance industry to deal with.”
He said he expected the overall nat cat market to continue to grow at the upcoming renewals.
“Over the last 30 years, it's generally grown by between 5 and 7 percent per year. Demand keeps going up – more urbanisation, increasing values, inflation and climate change are driving demand for more protection from clients to their insurance companies, and in turn from insurance companies to reinsurers.”
He said the insurance industry had a critical role to play in discussions around climate change, through its operational, underwriting and investment actions.
“We also have a lot of data. And a big part of the dialogue around climate change is about data. We believe a global, transparent, data- and expert-driven dialogue is necessary to make sufficient progress, and the insurance industry is critical in that.”