Swiss Re’s Message For Catastrophe Reinsurance Buyers: Prepare To Be “Unhappy”

Hurricane Ian did not take Swiss Re’s models by surprise, but they are signaling the catastrophe risk market needs a reset.

Swiss Re’s Message For Catastrophe Reinsurance Buyers: Prepare To Be “Unhappy”
Hurricane Ian Storm Damage, Florida Fish and Wildlife Law Enforcement

A consistent message from one of the largest catastrophe reinsurance sellers heading into the January renewals is clear: expect to take on more risk and pay more the risk that you sell.

“We think there are clear adjustments that need to be made in terms of the retentions, that is the skin in the game that the primary clients put for some of these positions,” said John Daley, Swiss Re CFO during today’s earnings call. “We're prepared to work with our clients through the renewals in 2023 to be sure that we get to an adequate sharing of risk and an adequate pricing of the risk that we assume.”

The Zurich-based reinsurer reported $442 million net loss in the third quarter, driven by $2.5 billon in natural catastrophe claims primary tied to Hurricane Ian. The quarter pushed Swiss Re into a $285 million net loss for the first nine months of 2022.

Daley said that the upcoming January 1 reinsurance renewal will be challenging, especially for “anything touching Florida”, adding that the global market for natural catastrophe risks needs to be rationalized.

“I think we see a true market dislocation in reinsurance broadly and natural catastrophe specifically,” he said, explaining that market changes will result in “material increases” in primary catastrophe retentions and pricing.

“The economics of the reinsurance industry has been challenged over the last five years. I think it's clear to all that we would not just expect but require better expected returns on the site,” Daley said. “The discussions with our clients are, in some ways, are likely to leave some people unhappy with the amount of price increase that we believe is appropriate in this moment. “

Swiss Re has no plans on pulling back on catastrophe reinsurance coverage that it offers, With Daley adding that the reinsure’s internal catastrophe models were not taken by surprise by the loss. However, he cautioned that Swiss Re' internal models are telling executives to tread carefully with its available capacity, especially after Hurricane Ian losses and associated inflation .

“I’d say that a hurricane with winds of 240 kilometers an hour is not unknown. It's a very big storm, and the fact that this is a $50 billion-plus industry loss should not be a surprise to people,” Daley said. “It's not a surprise to us. It's a chunky loss in the quarter. It's a big loss for the year, but we'll get through this and make sure that the pricing that we've received from our primary clients on a going-forward basis reflects the risks appropriately.”

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