Finding a new price equilibrium
Swiss Re’s Tamara Soyka says European cat reinsurance is on the right track, but warns there is still a long way to go to achieve sustainable structures and a new price equilibrium.
Swiss Re has said it will continue to push for rate adequacy and structural change at upcoming European property cat renewals, with the reinsurer warning the market still has a long way to go to reach a sustainable equilibrium.
Speaking to The Insurer ahead of this year’s Baden-Baden meeting, Tamara Soyka, Swiss Re’s head of cat perils for EMEA, said the market correction which took place ahead of the 1 January 2023 renewals was a step in the right direction, but more progress was needed at the upcoming 1.1 renewals.
“We’ve seen the market move away from aggregates – especially in France where they were very common – and we’ve seen retentions moving in the right direction, namely upwards,” she said.
“From a European perspective we are on track but we are not there yet. I’m expecting there to be an increased demand for reinsurance at upcoming renewals, and we are here to support our clients.”
Soyka, who said reinsurance supply will likely remain disciplined at 1.1, added that it was vital to remain focused on sustainable rate adequacy.
“We’ve seen the market move but we are a long way from reaching a new equilibrium. We have an appetite for property business in EMEA but we are prioritising the right structures and achieving adequate returns.”
While she said Swiss Re’s risk appetite remains unchanged, Soyka cautioned that price and structures must be adequate. She also defended the stance taken by reinsurers around increasing retentions amid a rise in attritional losses, particularly given recent inflationary pressures and rising exposures.
“Insurance companies are best suited to absorb the attritional losses from frequency events that we are seeing more and more of, and the reinsurance function is there to serve as a shock absorber for severe events,” she said.
“At the last 1.1 renewals there were moves towards more sustainable structures and a new price equilibrium. We expect to continue on this path for the foreseeable future – more progress is needed to achieve that.”
Rising cat losses
Soyka was speaking following another period of elevated cat losses, which totalled around $50bn in the first half of 2023.
“That is slightly above the $48bn we saw in the first half of 2022, and represents the second-highest first-half total since 2011,” she said.
“ In Europe, the main driver of loss was the Turkey earthquake, which was the costliest earthquake on record in Europe in terms of economic and insured value. There have also been several other events in Europe, including the Emilia-Romagna floods and more recently hail losses in Italy.
Soyka said the Turkey earthquakes in February 2023 provided an immediate test for Swiss Re’s updated model, released in September 2022. The reinsurer operates a suite of close to 200 nat cat risk models across the world capturing close to 90 percent of global insured exposures.
“The model performed well both in terms of seismological aspects – location, size and return period for such an event – as well as in terms of the loss estimate,” she said.
“We partnered with Global Earthquake Model to develop a state-of-the-art model for the Middle East, which includes Turkey and Israel. We are hopeful that the latest science will make its way into the commercial vendor models on the back of this catastrophe.”
Soyka said by developing its own models, Swiss Re is able to quickly react to changes in the rapidly evolving risk landscape.
“In contrast to most competitors, we heavily invest into our proprietary research and modelling of nat cat, and this allows us to be highly bespoke in underwriting and risk taking.”
Soyka said secondary peril losses, especially from severe convective storms, continue to be a prominent driver of losses both in Europe and globally.
“The 2022 annual hail loss in France was the largest on record, and the average loss over the previous 10 years – the 2012 to 2021 period – was already much higher than the decade before.”
Soyka said those events had further underscored the shift in risk which had occurred and prompted the market to respond last year with a long-overdue correction in terms of price and structure.
She described the European cat reinsurance market as being “on the right track”, but not yet in a sustainable place.
“We must continue on that track. And we must be realistic that natural catastrophe exposures are growing. Insured losses in excess of $100bn are to be expected and are here to stay,” she said.