Swiss Re has issued a bulletin noting that it is “well placed for the upcoming 2011 renewal negotiations with its European clients.” The talks, which begin this week in the German resort of Baden-Baden, bring together brokers and reinsurers (and tangentially their clients) to set the basic rates for reinsurance treaty renewals in January.
After some rocky times, triggered by the financial crisis, the world’s second largest reinsurer assured brokers and their clients that it has maintained its expertise, has “ample capacity in all lines of business across Europe,” and is in a “strong capital position.”
Martin Albers, Executive Board Member and Head of Client Markets Europe, commented: “Swiss Re continues to set great store by continuity in its client relations, enabling us to offer them stability and reliability. Our disciplined approach to underwriting is a key driver of profitability. We have enough capacity across all lines of business for our European clients and will offer it to them at prices commensurate with the risks involved.”
Swiss Re said that the market environment remains “challenging,” and that “demand for capital has increased.” It cited “more stringent solvency requirements, historically low interest rates and a growing focus on the economic cost of risk” as the main factors contributing to “boost demand for reinsurance cover;” adding that, “in the next decade, Swiss Re anticipates moderate, yet sustained growth in the reinsurance industry, with average annual growth rates of around 3.5 percent in the non-life segment.”
As Swiss Re’s primary business is reinsurance, it is necessarily concerned with conditions affecting the primary carriers it reinsures. The number one concern, which was also a topic of discussion at A.M. Best’s recent briefing in London on the European insurance market, remains the parlous state of the auto (motor) coverage in Europe.
“Pressure on German Motor market remains high in 2010,” said the bulletin. “The combined ratio for the primary Motor insurance market in Germany is expected to be 105 percent, a situation brought about by long years of rising claims payments along with cuts in original premiums.”
Thomas Witting, Head of Client Markets Germany, Nordics and Baltics, explained: “The price war in the primary market has slowed, but the actual loss burden continues to grow faster than premium income. Given the historically low interest rates, investment income cannot balance out loss developments. There is a trend towards healthier rates in the primary market, but the market environment remains critical.”
Swiss Re added that in its opinion, “both the erosion in premiums and exposure to underwriting losses have been underestimated in recent years.” Witting cautioned: “We cannot accept anything that would threaten the profitability of our reinsurance portfolio. Motor insurers need to respond far more strongly. Otherwise, the earnings situation in the Motor insurance segment is bound to cause major problems.”
The reinsurer indicated, however, that it “intends to remain active in this segment and to discuss closely with its clients how profitability can be achieved.”
Auto insurance may be the primary problem, but it isn’t the only one. Swiss Re pointed out that the “rising incidence of property cat claims in Northern Europe” has led to increasing demands for natural catastrophe capacity. It assured the carriers that it is “entering the renewal season with ample capacity for nat cat events such as windstorms, hailstorms and floods in the European markets.”
Witting stressed that “after a very tough winter with a large number of frost and water-damage claims, followed by a summer with a high frequency of hailstorm, flood and heavy-rainfall events, we remain prepared to offer our clients innovative cover for frequency losses and capacity at prices reflecting the risks involved.”
Beat Strebel, Head of Client Markets Austria, Central, Eastern Europe, pointed out that the natural catastrophe situation in Austria shows that the “trend towards more – and more expensive – natural catastrophe losses in the region continues unabated. The increasing intensity of natural catastrophes has necessitated changes to the models used by our clients for these risks. Against this backdrop, Swiss Re is focusing firmly on risk-adequate prices.”
Central and Eastern Europe were also hit by “a series of natural catastrophes such as floods in Poland, the Czech Republic, Slovakia, Hungary and Slovenia, along with hailstorms in the Czech Republic and losses caused by heavy snow in Poland,” the bulletin said.
Strebel noted: “In Central and Eastern Europe, as well as Germany and Austria, both the frequency and severity of natural catastrophe events are on the rise. The current structures and calculation methods need to be revised.”
In addition Swiss Re said that in the CEE [the European Economic Community] countries, where the economic and financial crisis has taken a very heavy toll, it detects positive signs for the future: “Nonlife premium income should pick up slightly in 2011 as the economic recovery in these countries gathers pace,” Strebel explained.
Lastly, the reinsurer tackled the impact of Solvency II, noting that the “tighter regulatory environment under Solvency II is set to boost capital requirements, and reinsurance is one of the most efficient ways of meeting that demand.”
Albers pointed out: “Our financial strength, combined with our experience in implementing the Swiss Solvency Test, put us in a position to support and advise our clients as they prepare for Solvency II, and to offer them high-quality, tailor-made solutions to their reinsurance needs.”
Source: Swiss Re