Nicola RAUTMANN, Market Executive Austria, CEE, Russia & CIS, Swiss Re
Christian KREUTZER, Head of Market Underwriting CEE, Swiss Re
Nicola RAUTMANN: Let me start with the market, in general, first. It's been one of the most expensive years we ever saw and that's because is not just one big loss, but we had seen several losses: three hurricanes and also two earthquakes in Mexico, we had seen, also, storms in Australia and fires in California. And it all comes together in one year. So, all those losses are part of Swiss Re's loss scale. So, it's not just for the market, but, also, we participate, we are one of the market leaders, so we're also having the claims.
XPRIMM: Although it was a very costly year for the reinsurance industry, we see that there is a lot of capacity, although the return of capital is quite low. How can you explain this much quantity of capacity?
N.R.: It's an interesting question. Maybe one guess is: when you look at where capital is invested, it's always depending on what other investments are available at that point in time. So, for sure, the interest rate environment plays a role from our perspective, maybe even a crucial role, and, also, the expectations of shareholders. And what we have seen is that there has not been so much losses until now. So, the real and what was earned and was accounted for was maybe above or what was expected. And that, for the benefit of those shareholders.
Christian KREUTZER: I guess reinsurance as such is by definition a global business, right? So, clients benefit from the diversification reinsurance balance sheet offer and the reinsurance capacity provides to them. This goes for good years, but this, obviously, also goes for years when the loss development is less favorable. So, in that sense, the impact of those events needs to be seen in the impact on the entire reinsurance capital base.
XPRIMM: What can you tell us about the impact of the losses that we talked before and the renewal rates? Can we consider that we are to the end of a soft market?
N.R.: It's quite difficult to predict the rates which are coming, so we can just talk for ourselves. It's definitely a case where we look at all shareholder base, so that when we go back in time - maybe last year' Baden-Baden -, we had no losses. So, we were talking when is this event to happen which might cause this change. Now, we had those events and now our shareholders they're expecting from us something is happening. And that's what we want to pursue. I'm not sure about what the others are doing, so I cannot tell, but definitely from our end we will pursue that route. And it's important for us because we're more less forced to go back to our shareholders with more than we had before.
C.K.: Maybe just adding from the daily conversations we have here with clients. I mean, it's important to understand that we always start with the individual portfolio, so we look into how have exposures developed, how have losses and portfolio developed and that's the first start, right? So, we look into what is the rate, what is the pricing we need to achieve in order to provide capacity in 2018 for a given book. In addition, we obviously look into how have priced developed on certain programs over the last couple of years. It's no secret that some companies have utilized the market conditions to a larger extend than others, so, in other words, the current pricing compared to a sustainable price level has certain deviations. And that's another element which we need to take into account, when we now talk about the terms and conditions for the next year.
N.R.: I can tell you when I look at our own portfolios, of Swiss Re, CEE, analyzing the last five years, the combined ratio deteriorated by 10%. So, that's what happened, from our own perspective.
XPRIMM: Coming back to the catastrophic events, they showed us that even developed countries, like US, have a huge protection gap. What are Swiss Re's solutions for closing the protection gap and do you consider that these solutions are suitable for the CEE market?
N.R.: Christian (KREUTZER) is an expert on the solution side, but, as a first glance on it, definitely protection gap is one of the most important topics from our perspective and it's not just now, but something which we also pursued in the past. We see of course a protection gap , similar to US and we believe we have solutions to offer.
C.K.: I have spent the last two years working in Asia for Swiss Re. Actually, when you look into markets, it's a pretty much common global feature which we see, in the sense that the insured loss is, in quite many cases, a fraction of the economic loss. So, what we need to think about first is what are the reasons why people are not purchasing insurance for their protection needs. And there are different elements, different aspects, but what you can see as common in different parts of the world it's the affordability of the insurance products. I mean, depending on average income, in certain countries an insurance premium is a considerable expenditure. So, that's one feature. The second feature which we also see is the complexity of the traditional insurance products, which markets offer, in the space of, for example, property insurance. And if you think about being a broker and you probably need to spend ten minutes to sell a motor insurance policy, but you might need one hour to sell a property policy, while your commission is the same it clearly tells where insurance agents and brokers will put priority. So, what we, as an industry, need to think about is how can we make our products easier to understand for our customers and, also, affordable - those are key aspects -, and how can we make the society aware of the risks they are exposed to. And I think, in that sense, Central Eastern Europe is a region which has many elements where those questions need to be addressed with clients. In terms of affordability, microinsurance products are a solution. Just a briefly explain what we mean with microinsurance: quite often we talk about relatively small amounts of money which are needed to provide a recovery from the impact of a loss and the full scale insurance product is, sometimes, simply providing too much of compensation. So, scaling down the product to the actual needs of the private consumer in a certain country is one way how to overcome the obstacle of affordability.
XPRIMM: So, do you consider that microinsurance or parametric insurance can be successful implemented in the CEE region. But what is the regulators' opinion regarding this type of product? Do you know about discussions in this area?
N.R.: Exactly as you mentioned, there are discussions in this direction and, actually, not all regulators are looking at that the same, so there are different perspectives. One key thing which is debated is regarding the basis risks. Just to describe: when we offer an insurance product, is it really exactly matching the loss which was done occurring? And, when you talk about indexation or parametric products, you might have a difference between what the index says and what the insured has suffered as a claim. But I think there are ways now that those two topics can come closer to each other, because of the modern technology. So, my long answer to your question is: I think it can be reconsidered as insurance if we are able to close the address the basis risks in a good way.
C.K.: Absolutely and I guess an important aspect, when you talk about the regulator, when you talk about all stakeholders is be transparent about such solutions. Talk to the market at conferences - I mean, I have been at XPRIMM's conference last week in Bucharest speaking about how parametric insurance product could help the Romanian market to overcome the protection gap related to earthquake and to earthquake exposures, offer dialogue to associations, offer dialogue to regulators and find a common solution with all stakeholders involved. That's very much the process we apply to that.
N.R.: I think it's a process, it's not that we come with a product and that's it.
XPRIMM: Coming back to another topic: insurtech. This is one of the most important trend in the industry. What are the Swiss Re's solutions for the CEE companies in this direction?
C.K.: Again, when you talk about innovations, when you talk about solutions, it's never a copy-paste exercise, so we really need to understand the mechanisms of each and every country and each and every market. But one thing is for sure: if you want to close the protection gap with a product, with an insurance solution, you need to have a broad reach out to potential customers and this is exactly the aspect where insurtech comes in - providing an example, platforms where we can reach out to a large part of the society with a proposal for an insurance product, making it easier for people to access the capacity and to access a solution for their specific needs. So, when we talk about solutions and we talk about products, the product design is one part, but we also spend a significant effort on finding the right distribution network. And when you look into the CEE and the affinity of people, for example, towards the Internet, then it's obvious that solutions with a broad reach out could be based with Internet based solutions.
N.R.: Maybe one thing going a bit away from the retail side, and where Swiss Re can contribute is the agro products. That way, we're not talking about the original customer, we're talking also about a bit portion of the economy and exactly there we have a specific product, which is using app and Internet technology, and using a weather dater. So, that's quite developed, it's there and would go exactly in this direction of insurtech.
XPRIMM: Can you give us a conclusion, following the days in Baden-Baden, mainly for our clients in the CEE region?
N.R.: We should be quite proud, as an industry, that we can sustain such big losses and still re-offer all the capacity needed. As an industry, we can really still provide what our clients expect from us as reinsurance, but also insurance companies towards their clients. But that's maybe a bit more expensive than it was one year ago, because we have suffered this loss.
C.K.: I'll just put it in one sentence for our clients: let us sit together and discuss how we can develop solutions for closing the protection gap in the CEE markets.
XPRIMM: Thank you very much!