Catastrophe cover to rise by over 50% by 2020: Swiss Re

Reinsurance demand to cover catastrophes is expected to double in high-growth markets and to increase by 50% in mature markets by 2020, Swiss Re says

September 10, 2013 1:25 IST | India Infoline News Service
Swiss Re expects the demand for natural catastrophe reinsurance to double in high-growth markets and to rise by around 50% in mature markets by 2020. Alternative capital is focusing on peak exposures in the US nat cat markets where entry barriers are low and margins high. Swiss Re estimates that prices for nat cat covers will stabilise in 2014 after a decline this year. With clients looking for more than just capacity, Swiss Re is well positioned to take advantage of its full service business model.

Amid the continued low yield environment, alternative capital continues to enter the re/insurance market in search of attractive investment opportunities. Over 70% of this capital focuses on US natural catastrophe risks while other business lines are less affected. Swiss Re estimates the amount of alternative capacity today at around USD 40 billion worldwide. Alternative capital has the highest share in the US nat cat market where it is comparable to what it was immediately after hurricanes Katrina, Rita and Wilma.

Alternative capital still needs to be tested in case of increasing interest rates or large losses from natural disasters.

These changing market dynamics are expected to be most challenging to less diversified reinsurers.

"We take the inflow of alternative capital seriously, but we are not alarmed by it. Swiss Re can take advantage of its capital markets expertise and – at the same time – compete successfully as a full service provider," says Swiss Re's Group Chief Underwriting Officer Matthias Weber. "Smaller, less diversified reinsurers, however, will be under significant pressure," Weber adds.

Swiss Re sees continued growth of exposures over the coming years, as the economic outlook which includes the mature markets improves. Demand for nat cat re/insurance is expected to double in high growth markets and increase by approximately 50 % in mature markets by 2020. At the same time, Swiss Re will focus on providing innovative product solutions and underwriting expertise to support clients.

"Especially in today's connected world, risk transfer is getting more complex. Being able to deliver tailor-made solutions to your clients for very different and challenging scenarios will be a key differentiator to succeed in the market," says Christian Mumenthaler, CEO Reinsurance at Swiss Re.

Although prices for nat cat covers are expected to decrease in the short term, Swiss Re expects them to stabilise in 2014. The US liability insurance market is hardening. For other property & casualty segments, price trends are expected to remain stable.

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