Swiss Re examines why P&C markets must ‘right the ship’

President believes there are challenges facing the global capital base

Swiss Re examines why P&C markets must ‘right the ship’

Insurance News

By Bethan Moorcraft

The P&C markets in the insurance and reinsurance industries are “not terribly healthy,” according to Swiss Re’s Keith Wolfe, president of US P&C, regional and national.

A low interest rate environment, a difficult auto insurance market and general inefficiency in P&C has led to a lag in industry development. Add to that the considerable catastrophe losses that have “eroded the entire annual premium base for the US P&C industry” and the industry’s in a tight spot.

Lots of publicly trading companies in the reinsurance space are reporting a return on equity (ROE) in the single digits. These poor ROEs need to be ramped up to a sustainable double-digit figure as quickly as possible if the industry wants any chance of regaining its health, according to Wolfe.

“So far, 2017 has shown us that the good luck we had with natural catastrophes is quite clearly over. It has forced the industry to acknowledge things that are in various states of disrepair or unhealthiness,” Wolfe told Insurance Business.

“Property up until recently was masking a lot of bad behaviour and problems. Companies were making money because they were lucky – the catastrophes didn’t come. In reality, the industry probably wasn’t pricing properly for the catastrophes during this benign period, which has come full circle this year.”

Wolfe said the industry has an opportunity to transform its current sourness into a strong and sustainable business model, but it requires everyone along the insurance value chain to understand that the industry operates in a global capital environment and that everyone shares in the good and the bad.

“Communication is key. People have to understand the whole picture,” said Wolfe. “Global capital and a steady flow of money into the reinsurance and insurance sectors created an environment where companies could pay less for a reinsurance product and therefore sell their own insurance products for lower prices as well.

“But nobody’s immune when the global capital base is challenged, like it has been this year. Everyone is part of the equation. So, insurance companies need to analyse their buying behaviors over the last several years and consider the partnerships they’ve had with reinsurance partners and vendors to work out what rate pressures and changes to the capital base might mean for them.”

Pricing has been poor for many parts of the insurance and reinsurance markets for a number of years, according to Wolfe. The industry needs to work towards healthy ROEs and efficient markets that trade well and don’t have an oversupply or an undersupply.

As the industry “rights the ship” and slowly edges back to sustainable economic health, it also needs to focus on the fundamental value of solving more of society’s problems. After all, that’s what the (re)insurance industry’s there for, Wolfe added. 

Related stories:
Swiss Re delves into the challenges of the casualty marketplace
Swiss Re takes big blow from catastrophes

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