Swiss Re Expects Continued Growth Momentum for Non-life Reinsurance; Risk-adequate Returns Required

As risk awareness and demand for re/insurance is increasing, Swiss Re highlights the importance of improved underwriting data, enhanced modelling and rebalancing of the insurance value chain for a sustainable reinsurance market. Swiss Re remains committed to engaging with primary insurers to anticipate and manage risk, respond to catastrophic events and help them grow in an uncertain world.

Ahead of the start of the January 2024 renewal discussions between insurers and reinsurers at the Rendez-Vous de Septembre, Swiss Re shares its view on the current state of the industry and highlights key trends in the market. Swiss Re expects central themes to be the increasing demand for re/insurance protection in an environment marked by heightened volatility and the continued need for risk-adequate returns.

Against this backdrop, the non-life reinsurance market is expected to grow above GDP, driven mainly by inflation and urbanisation. The 10-year outlook for the market in USD shows nominal growth of approximately 5.4% per year, or around 3% if adjusted for inflation.

Following years of weak performance and above-average natural catastrophe activity, the reinsurance market is reverting to a more sustainable level of risk-adjusted pricing. This trend is expected to continue at the upcoming January 2024 renewals.

Urs Baertschi, Swiss Re's CEO Property & Casualty Reinsurance, said: "Strong partnerships between insurers and reinsurers, improved underwriting data, and, to a degree, a rebalancing of the risk sharing between insurers and reinsurers will be necessary for a sustainable industry and to ensure reinsurance can fulfil its core function as a shock absorber of peak risk."

Evolving natural catastrophe risks require adaptions in underwriting

Rising losses from natural catastrophes are strongly impacting the property re/insurance market. As demonstrated by the many events across the world in 2023, risk profiles continue to evolve and insured losses in excess of USD 100 billion per annum are expected to recur. Demand for natural catastrophe property reinsurance is likely to remain high as exposures keep increasing. At the same time, the main risk drivers remain unchanged: extreme weather events, urbanisation, higher property values and inflation.

An important discussion point will be the balance between reinsurance capacity and increasing demand. Primary insurers are best suited to absorb frequency and attritional losses, while reinsurers are reverting to their core function, which is supporting insurers in recovering from large loss events such as the earthquake in Turkey earlier this year. This trend towards a more sustainable balance in risk sharing is expected to continue.

Secondary perils such as wildfires, floods and hail will also be a topic, as modelling such perils remains challenging and the effects of climate change are becoming more evident as a result of increasingly extreme weather events. To achieve more predictable outcomes, greater data transparency and investment in predictive capabilities are required. Swiss Re is carefully monitoring these exposures and has taken action to manage the evolving risk landscape.

Gianfranco Lot, Swiss Re's Chief Underwriting Officer, Property & Casualty Reinsurance, said, "For the industry it's important that risks remain insurable. That's why Swiss Re has been talking about climate change for so long and we have taken such a strong position on it. We continue to invest significantly in our own risk models and are ready to support and grow with our clients in the natural catastrophe business."

Challenging casualty market

The casualty market will be another topic of relevance, as it faces a number of issues. Social and economic inflationary pressures are driving up claims costs. Litigation funding grew by 42% from 2019 to 2022, and a Swiss Re analysis shows that between 2014 and 2021, the number of awards over USD 5 million in US courts grew by 54%. This trend is expected to continue, and while it is predominantly a US phenomenon, there are signs that it is emerging in other parts of the world. In such an environment, greater data transparency will be required to understand underlying exposure associated with emerging risks and to navigate upcoming challenges effectively.

Growth beyond pure risk transfer

To grow and advance insurance offerings in the fast-changing market, the need for greater efficiency is becoming an increasingly relevant topic in the insurance industry. In this, data- and tech-driven solutions will play an important role.

Swiss Re's Reinsurance Solutions division offers a broad range of tools and services spanning the entire insurance value chain, beyond pure risk transfer. These scalable solutions cater to specific needs and are designed to help insurers stay competitive as the industry continues to evolve rapidly.

Moses Ojeisekhoba, Swiss Re's CEO Global Clients & Solutions, said: "Building on our risk knowledge and in-house digital capabilities, Swiss Re's suite of solutions goes beyond our core function as a reinsurer. We help primary insurers better utilise data and analytics to simplify product offerings, reposition portfolios and improve overall performance, and ultimately position them for future growth."