Baden-Baden: Swiss Re well placed to provide substantial capacity – sights set on profitable business at risk-adequate prices

22 October 2010 Swiss Re

Swiss Re is well placed for the upcoming 2011 renewal negotiations with its European clients. Going into next week's discussions at Baden-Baden, clients and brokers can rely on Swiss Re's leading reinsurance expertise, its ample capacity in all lines of business across Europe, its strong capital position and its proven track record for innovation.

Focus on profitable business

Swiss Re will have its usual strong presence in Baden-Baden. In the run-up to the annual meeting of (re)insurers and brokers which gets underway on Sunday, Martin Albers, Executive Board Member and Head of Client Markets Europe, comments: "Swiss Re continues to set
great store by continuity in its client relations, enabling us to offer them stability and reliability. Our disciplined approach to underwriting is a key driver of profitability. We have enough capacity across all lines of business for our European clients and will offer it to them at prices commensurate with the risks involved."

With the market environment remaining challenging, demand for capital has increased. More stringent solvency requirements, historically low interest rates and a growing focus on the economic cost of risk are all contributing to boost demand for reinsurance cover.

In the next decade, Swiss Re anticipates moderate, yet sustained growth in the reinsurance industry, with average annual growth rates of around 3.5% in the non-life segment.

Pressure on German Motor market remains high

In 2010, the combined ratio for the primary Motor insurance market in ermany is expected to be 105%, a situation brought about by long ears of rising claims payments along with cuts in original premiums.

Thomas Witting, Head of Client Markets Germany, Nordics and Baltics, explains: "The price war in the primary market has slowed, but the actual loss burden continues to grow faster than premium income.  Given the historically low interest rates, investment income cannot balance out loss developments. There is a trend towards healthier rates in the primary market, but the market environment remains critical."

In Swiss Re's opinion, both the erosion in premiums and exposure to underwriting losses have been underestimated in recent years. As Thomas Witting says: "We cannot accept anything that would threaten the profitability of our reinsurance portfolio. Motor insurers need to respond far more strongly. Otherwise, the earnings situation in the Motor insurance segment is bound to cause major problems. Swiss Re intends to remain active in this segment and to discuss closely with its clients how profitability can be achieved."

Rising incidence of property cat claims in Northern Europe – Swiss Re ready to provide natural catastrophe capacity

Swiss Re is entering the renewal season with ample capacity for nat cat events such as windstorms, hailstorms and floods in the European markets. In 2010, there was a substantial rise in losses in northern Europe, which negatively impacted the primary insurance market. As Thomas Witting comments: "After a very tough winter with a large number of frost and water-damage claims, followed by a summer with a high frequency of hailstorm, flood and heavy-rainfall events, we remain prepared to offer our clients innovative cover for frequency losses and capacity at prices reflecting the risks involved."

Natural disasters in Austria and Central and Eastern Europe generate heavy claims burden Beat Strebel, Head of Client Markets Austria, Central Eastern Europe, reflects on the natural catastrophe situation in Austria: "The trend towards more – and more expensive – natural catastrophe losses in the region continues unabated. The increasing intensity of natural catastrophes has necessitated changes to the models used by our clients for these risks. Against this backdrop, Swiss Re is focusing firmly on risk-adequate prices."

In Central and Eastern Europe, 2010 has been marked by a series of natural catastrophes such as floods in Poland, the Czech Republic, Slovakia, Hungary and Slovenia, along with hailstorms in the Czech Republic and losses caused by heavy snow in Poland. Beat Strebel adds: "In Central and Eastern Europe, as well as Germany and Austria, both the frequency and severity of natural catastrophe events are on the rise. The current structures and calculation methods need to be revised."

In the CEE countries, where the economic and financial crisis has taken a very heavy toll, Swiss Re detects positive signs for the future: "Nonlife premium income should pick up slightly in 2011 as the economic recovery in these countries gathers pace," explains Beat Strebel.

More stringent requirements through Solvency II – Swiss Re ready with support

The tighter regulatory environment under Solvency II is set to boost capital requirements, and reinsurance is one of the most efficient ways of meeting that demand. As Martin Albers points out: "Our financial strength, combined with our experience in implementing the Swiss Solvency Test, put us in a position to support and advise our clients as they prepare for Solvency II, and to offer them high-quality, tailor-made solutions to their reinsurance needs."

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