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Reinsurance rates, particularly for natural catastrophe coverage, probably won’t increase this year, said Swiss Re Ltd.’s chief financial officer.
Prices will only begin to rise again when there is some “capital depletion” because of market volatility or a costly disaster such as an earthquake, said George Quinn in an interview in Zurich today. “It’s unlikely prices will rebound in 2014.”
Reinsurers, which help primary insurers shoulder risks in return for a share of the premiums, saw prices for property- catastrophe policies decline 11 percent during Jan. 1 contract renewals amid an oversupply of capital, according to Guy Carpenter, the reinsurance broker of Marsh & McLennan Cos. Prices also fell for most other types of coverage.
“The inflow of alternative capital clearly has some impact, but we think it is more just the normal supply and demand,” Quinn said. Companies are recovering from the economic crisis and there are fewer costly catastrophes, leading to less reinsurance business, he said. “As a result there is an excess of supply and prices react accordingly.”
A flood of capital from investors and lower-than-average losses from natural disasters meant that supply often outstripped demand in the latest renewals, Guy Carpenter said. The reinsurance industry had about $322 billion in dedicated capital at the end of 2013, almost a record level, according to the broker.
More Investments
Swiss Re has reduced the natural catastrophe coverage it sells in favor of casualty reinsurance, according to Quinn. The firm raised the weighting of casualty coverage to 44 percent from 36 percent, and may increase it further, he said. “The relative attractiveness of casualty is higher, and as long as that remains so we would write more business.”
Swiss Re said today that its rates for property-catastrophe policies declined 3.6 percent in the Jan. 1 renewals, while its business volume fell 6 percent. The company, which renews 60 percent of its non-life contracts in January, said it expects less “margin erosion” in its natural catastrophe business during April and July, the next major renewal dates.
To boost growth, Swiss Re could make further investments such as the ones it made last year in what it calls high growth markets such as Asia, according to Quinn.
“From a risk appetite perspective we are close to the limits, but that doesn’t mean to say the portfolio cannot be reshuffled, some places can be divested and new investments can be made,” he said.
Swiss Re bought a stake in New China Life Insurance Co. from Zurich Insurance Group AG in November for about $493 million and a holding in Brazilian insurer Sul America SA for $334 million. In October, it invested as much as $425 million in Hong Kong billionaire Richard Li’s FWD Group.
Quinn will leave Swiss Re on May 1st to become CFO at Zurich Insurance Group AG, the biggest Swiss insurer. He will be replaced by Chief Risk Officer David Cole.
Editors: Frank Connelly, Mark Bentley