According to Urs Baertschi, CEO Property & Casualty Reinsurance (P&C Re), this complex environment presents also opportunities, with Swiss Re focused on supporting clients in understanding the risks and providing tools to help them grow. Swiss Re expects the global non-life reinsurance market to grow by 3.2% p.a. until 2025.
On the life and health side, Paul Murray, CEO Life & Health Reinsurance (L&H Re), sees subsiding COVID-19 mortality, hot employment markets and rising wages as supportive for the sector, coupled with higher interest rates.
Urs Baertschi, Paul Murray and other senior executives shared their views on Swiss Re's core reinsurance business with global media at the Swiss Re Media Dialogue 2023.
Natural catastrophes: growing protection gap
One of the main topics at the virtual event that took place on 15 June 2023 was the question whether natural catastrophes are still insurable, considering that insured losses have grown by 5–7% p.a. over the past 30 years. In 2022, total economic losses were USD 275 billion, with insurance contributing USD 125 billion in claims support. The remaining losses of USD 150 billion were not protected (link).
According to Swiss Re, this so-called protection gap is growing, driven by factors such as increasing frequency of climate-related natural catastrophe events (e.g. droughts, floods and wildfires) and wealth accumulation in risk-prone areas, such as near the coast or wild forests. Closing this gap is both an opportunity for insurers to grow and an important part of increasing global financial resilience.
Urs Baertschi: "We remain committed to the natural catastrophe market. It is a very promising business – if you understand the risk and have the trust of your clients."
Growing risks need to be accompanied by risk-adequate pricing. With the clear trend to a hardening market for natural catastrophe risks, Swiss Re is well placed to grow, while achieving sufficient returns.
Gianfranco Lot, Chief Underwriting Officer P&C Re, pointed out that historically, the soft market dating back to around 2013–2014 clearly reflected lower losses in those years. "However, with USD 100 billion in annual natural catastrophe losses coming through regularly, those rates needed to go up. The current hard market is a logical economic consequence of the series of interconnected risks."
Climate-related natural catastrophes do not only affect the re/insurance property market but have implications for many other insured assets across the globe: from wind parks and solar panels to crop fields and container ships. Anne Lohbeck, Chief Underwriting Officer Specialty, brought up examples of last summer's drought that destroyed crop yields in Europe and ships that could not run their trade routes because the Rhine's and Danube's water levels were too low.
Moderate premium growth in traditional life insurance
Paul Murray, CEO L&H Re, emphasized Swiss Re's ambition to be the leading value creator in the L&H reinsurance industry. "We have very strong teams, with often decades-long leading industry experience. This allows L&H Re to cover more than 280 million family members around the globe."
Multiple tailwinds support the L&H business, such as higher interest rates and subsiding COVID-19 mortality. Swiss Re expects the global L&H market to recover in 2023 but nevertheless, stay below the historical trend. Challenges include an eventual economic slowdown.
Swiss Re's business is well diversified across mortality, health and longevity risks, as well as different regions around the world. The mortality market is growing, helped by increased risk awareness in the aftermath of the COVID-19 pandemic, while growth in health is driven particularly by Asia.
Since 2002, society experienced five pandemic/near-pandemic viruses: SARS (2002–2004), MERS (2012), the avian flu (various, ongoing), the swine flu (2009–2010) and COVID-19 (2019/20–2023). After SARS, in 2006, Swiss Re started developing its own pandemic model to perform stress tests on its portfolios. Julien Descombes, Chief Underwriting Officer L&H Re, explained: "We model various factors around disease characteristics, non-pharmaceutical and pharmaceutical interventions, demographics, dependencies on financial markets and non-L&H business factors."
The experience of the COVID-19 pandemic has led to various updates to the pandemic model, from underwriting guidelines to capacity adjustments. However, overall COVID-19 has not significantly affected Swiss Re's view of the long-term mortality trends.
Julien Descombes said: "We view COVID-19 as a shorter-term mortality shock event.”
Future longevity gains
Historically, mortality improvements have typically come in waves. Since 2010, however, population-level mortality improvement has slowed, plateauing in several key advanced markets, primarily reflecting a flattening in deaths due to cardiovascular diseases.
Almost every region saw a drop in life expectancy between 2020 and 2022 due to COVID-19. "We are monitoring the situation carefully to see how the pathway will develop. This should normalise over time as we move from pandemic to endemic", said Natalie Kelly, Head Global Underwriting, Claims & R&D at L&H Re.
Future longevity gains are likely to come from several areas of medical breakthroughs, including cancer diagnosis and treatments, and new treatments for Alzheimer's disease. Natalie Kelly: "There are many future developments which could drive positive and impactful improvements in life expectancy, but these take time to develop and come to fruition. Our greatest opportunity remains our own lifestyle choices."
|
