A repricing of nat cats will depend on both short & near-term results: Swiss Re CorSo’s Nusslein

With the re/insurance industry having faced two of the costliest events on record within the last year, through both hurricane Ian and the recent earthquakes that struck Turkey, Swiss Re Corporate Solutions’ Head Innovative Risk Solutions Americas, Bob Nusslein, explained in an interview with Reinsurance News about how the global reinsurer plans to further develop its risk management solutions to help insureds better manage natural catastrophe events.

He explained that Swiss Re has remained ahead of the innovation curve because the company has always been a very active provider, and arguably one of the leaders in the market for providing parametric named windstorm and earthquake covers.

He said: “Parametric covers are not meant  to replace traditional insurance, but as a supplement to traditional insurance. Parametric covers function more like a DIC -a difference in conditions – to fill in gaps, supplement capacity, infill deductibles and provide cover where traditional insurance doesn’t really adequately cover property damage, business interruption and extra expense loss.

“We’ve been providing parametric for a long time to insurance customers on the reinsurance side and very actively also for corporate buyers on the Swiss Re Corporate Solutions side. Activity picked up after hurricane Katrina, and the demand has only increased following more recent hurricanes such as Harvey, Irma and Maria in 2017.”

He explained how parametric covers are becoming more well-known across the industry and how both buyers and brokers have become much more experienced with them, which ultimately has led to more traction in closing transactions to supplement covers.

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“So, now where are we going with this? We have developed second generation parametric covers using windspeed exceedance triggers for named windstorm and shake intensity triggers for earthquake parametric covers at specific latitude and longitude coordinates. We provide first generation Cat-in-the-Circle and other geometries, however we have the capability to provide the best structure suited to meet our customer’s needs.”

Nusslein was then asked a question surrounding whether we could see the industry possibly reprice in the near future, if nat cat events continue to worsen in the coming years.

He explained how the industry had been in a “protracted soft market” for a very long period of time, which started to witness changes in late 2019 coming into 2020, and how following this, the property market began to get increasingly hard during 2021, which has carried over into 2023.

“Soft market pricing didn’t allow for acceptable ROE or profitability for insurers’. Combined ratios were very high across the board, so pricing corrections needed to occur. Furthermore, we have started seeing greater frequency and severity of natural catastrophe and weather events, such as the Texas freeze, a series of hurricanes that hit Louisiana, Texas and Florida from 2017 to 2022, the recent Turkey earthquakes, and we’ve also had unprecedented rain from atmospheric rivers in California that caused widespread flooding.

“So, will pricing be impacted further? I think that will depend on the short term and near-term results. Will we have more events like significant named windstorm events, that further reduce profitability of the insurance market? We’ll see, but it’s possible the pricing correction has given a lot more comfort to insurers and with underwriting performance significantly improved.”

Moreover, Nusslein also commented on hard market retention management solutions, that Swiss Re Corporate Solutions is providing to its customers.

He said: “The significant hardening of the insurance market may have caught some insureds  by surprise.  In hard markets, retention management solutions are important.  Captives are used more broadly, but not all insureds have captives. We developed a solution to allow buyers to fund risk on our balance sheet, which is basically a “virtual captive”. This makes sense because a lot of companies don’t want to manage an insurance company long-term or they may use our virtual captive solution in the interim while setting up their wholly owned captive.

“There are a lot of peripheral services that are required to operate a captive, such as captive management, investment management. third party administrators for claims handling, accounting, tax, and legal advisors, among others. These peripheral services are an added expense and buyers can spend meaningful time managing a a captive insurance subsidiary. Swiss Re created an alternative – the virtual captive, that allows the corporates to fund risk and build surplus on our balance sheet.”

Further, Nusslein also addressed whether he thinks that pricing momentum will continue to persist at the mid-year renewals.

He said: “At January renewals prices hardened and there did not seem to be any stabilizing for April 1 renewals. Reinsurers were increasing rate, modifying terms and conditions and increasing attachment points. These changes had a knock on effect with primary insurers as well as corporate insureds.

“We do think price increases will continue, however we will have to see how natural catastrophes and man-made events impact the market during the remainder of 2023. Hurricane season is right around the corner, so I guess by the end of November, we will see how the insurance market has fared.”

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