Swiss Re leaders give their two cents on the January renewal period

“Increased capacity softened the market and created an imbalance between demand and supply for reinsurance,” Ladd said. “Reinsurers, in general, are unable to cover their cost of capital, let alone satisfy both shareholder expectations and generate new capital to support customers’ needs.”

Mitchell added that terms and conditions have “deteriorated dramatically” over the past decade, with reinsurance structures increasingly covering income volatility rather than capital protection.

“Contract wording has become broader and stretched the boundaries of what is intended by reinsurers, as shown by disagreements over Covid business interruption (BI) claims,” ​​Mitchell said. “At the same time, the risk environment is more challenging with globalization and increased cases. Words must keep up with these developments.

Mitchell noted that financial markets have been reluctant to offer new capacity in cat bonds, sidecars and other alternative capital instruments this year, which spelled doom — and less recourse available — when combined with rising interest rates. In Mitchell’s mind, this ultimately caused delay and tension Exclusive to January 1, 2023 renewal period.

Ladd says Swiss Re’s strategy is to be “predictable and consistent,” supporting its clients and brokers through a rich renewal process. Swiss Re quotes early — usually before Thanksgiving — to help its clients manage their own shareholder and board expectations ahead of the renewal period.

Asked if Covid losses continued to be a major talking point in this year’s renewal, as they were in 2020 and 2021, Mitchell responded affirmatively for a different reason than in previous renewal periods.

“Covid was a talking point this year, but more from the perspective of concluding ongoing discussions about BI claims with partners,” he said. “It really boils down to a key question of how to accumulate losses.”

Mitchell added that the pandemic has taught the reinsurance market important lessons about how reinsurers are factoring in previously unthinkable situations to make the world more resilient. This gave a sense of how much clarity reinsurers needed to add to their contract wording so that all parties were equally clear on what the reinsurance policies did and did not cover.

“Key topics include strikes, riots and civil unrest as well as non-damaging business interruption, particularly around critical infrastructure,” Mitchell said.

“There are many challenging themes surrounding what and how risks are covered by reinsurance contracts [remains],” he added. “For the industry to attract enough new capital to meet significant demand growth, we must continue to work to address systemic risk themes.”