After years of steep declines, prices in the property-casualty reinsurance market are stabilising at a level acceptable to Swiss Re, the chief executive of the world's second-biggest reinsurer said in an interview. "We are not seeing a price level that is unhealthy in our portfolio," Michel Lies told Reuters, ahead of an annual meeting of the reinsurance industry next month in the Mediterranean resort of Monte Carlo. "I do see a certain stabilisation and if it should occur at these levels, I am not an unhappy man."
Reinsurers such as Swiss Re, Munich Re and Hannover Re act as a financial backstop for insurance companies, helping them pay for large damage claims from hurricanes or earthquakes in exchange for part of the premium. But the relatively low level of big natural catastrophes affecting heavily insured Western regions in recent years has made it difficult for reinsurers to justify high prices for the financial backing they provide. That in turn has led to double-digit discounts in prices as players seek to preserve market share.
A major category 3 hurricane has not made landfall in the United States since Wilma in 2005. Lies said some lines of business, such as marine and aviation, may be priced too low for the risk, but he was sanguine about prospects for the overall market. "At whatever level prices stabilise, if there is a bit more stability and less volatility in the pricing it will be very positive for the industry," said the 61-year old, who took the reinsurer's helm in 2012.
Prices have also come under pressure because so-called alternative capital investors, namely pension, hedge and sovereign wealth funds, have pumped money into bonds designed to compete directly with traditional reinsurance. These investors see good returns in the absence of claims but risk losing their capital if bond payouts are triggered by a big storm or earthquake, for example.
Investor enthusiasm to join the lucrative alternative capital market over the last two years may have attracted some without a full understanding of the risks, Lies said. "We are not in a subprime environment but there are probably some less knowledgeable investors in the market today than there were three years ago," he said. Rather than fear competition from alternative capital, Swiss Re sees it as essential to help cover the 75 percent of global risks for which there is no insurance coverage.
The reinsurer has in the last four years expanded its catchment from the top 50 global insurers to include more than 1,500 regional and national players, whom Swiss Re helps with commercial strategy and product development, as well as reinsurance cover, as it pushes to expand the market. "I like to define ourselves as a consultant with skin in the game," Lies said.