Swiss Re Says Industry Won’t Repeat Past Mistakes

Swiss Re Ltd., the world’s second- largest reinsurer, said better models and oversight will prevent substantial losses as the industry struggles with a price slump.

“Earnings in the reinsurance industry are under pressure and that won’t change unless we see a notable rise of interest rates or a major catastrophe claim,” Frank Reichelt, head of the company’s German and Nordics business, said in an interview at the German spa town of Baden-Baden. “Nevertheless, advanced catastrophe models, improved risk management and closer scrutiny by ratings firms will prevent the industry from repeating mistakes of the past that resulted in substantial losses.”

He was referring to losses from disasters including the Sept. 11, 2001, attacks on the World Trade Center, that hit after a market-wide decline in rates in the late 1990s.

Conditions this year remain the same this year as in 2013, Reichelt said. Low interest rates are weighing on investment income and prices for reinsurance coverage have dropped amid competition from pension funds and lower-than-average catastrophe losses.

“Alternative capital provided by sources like pension funds is still lured by above-average returns into the reinsurance market,” he said. “And it’s increasingly seeking to diversify into regions and risks other than U.S. hurricanes, which may result in pressure on margins in a broader spectrum of the market.”

Reinsurers, which help primary carriers such as Allianz SE and Talanx AG shoulder risks, are meeting brokers and clients in Baden-Baden to renegotiate terms and conditions of contracts due for renewal in January.