Mira Kiridzic-Bügler, Market Head ACEE, Swiss Re

17 November 2022 — Daniela GHETU
Mira Kiridzic-Bügler, Market Head ACEE, Swiss Re

XPRIMM: Following the renewal season's conclusions, it seems reinsurance capacity for NatCat risks is somehow scarce and a hardening market is to be expected. How do you comment on this issue? 

Mira Kiridzic-Bügler: We are currently facing several challenges at the same time - natural catastrophes, particularly secondary perils, are increasing in frequency and severity and simultaneously the industry is being hit by inflation. This leads to a situation where demand for reinsurance is increasing and capacity for natural catastrophe risks is becoming scarce in certain markets. Swiss Re will be able to offer clients expiring capacities and is prepared to support with additional capacities where needed. However, a few things need to improve.

Looking at some reinsurance programs, the retentions of insurance companies have not changed for years. At the same time, the capacities went up and the price remained on the same level or even went down. On the global scale, for secondary perils only, our industry has absorbed an inflation-adjusted loss burden that has increased by a factor of 10 in the last three decades. 

Considering the increased frequency of secondary perils and high inflation, it's obvious that this is not sustainable and improvements in terms of structures, price and contract clarity are needed. 

XPRIMM: The insurance gap in the CEE, especially when it comes to NatCat risks, is still very large in many markets. If the reinsurance market hardens, do you think this might result in a widening of the insurance gap?

M.K.-B.: As a shock absorber, reinsurance plays a crucial role in enabling insurers to cover natural catastrophe risks and thus closing the protection gap. Currently, we are seeing an increasing demand for natural catastrophe reinsurance protection that is driven by inflation, which is pushing up the valuations of insurers' portfolios, and the increasing loss trends from secondary perils. If we want our industry to be sustainable, it is very important that we price risk adequately to reflect this new, more volatile reality as well as the economic situation; and inevitably, this will mean that rates will harden. As to the widening of the insurance gap as a consequence, this can be the case if the uncertainty and double-digit inflation stays for longer. Most likely, casco insurance would be the first insurance product where we will see shrinking portfolios.

XPRIMM: For many markets in the CEE their small dimension is an obstacle for finding a financial sustainable solution to increase NatCat insurance take-up. At Swiss Re you have often mentioned parametric insurance as a simple, predictable and affordable solution for a handful of risks, especially agriculture related. May it work as a regional solution to reduce the insurance gap at least on the agricultural property side? 

M.K.-B.: In the CEE region, government support for premium subsidies is essential to reduce the insurance gap. We have developed specific parametric products to help support new insurance offerings. For example, together with our local partners, Swiss Re offers parametric drought insurance in the region. The product is quite popular with farmers, for whom the increase in frequency and severity of droughts in the CEE region due to climate change poses a serious challenge. Swiss Re is willing to continue offering drought covers. However, in order to offer valuable and affordable solutions to clients, drought risk needs to be pooled with other risks, like hail, heavy rain, frost, etc. 

XPRIMM: Claims inflation is a trend already affecting the CEE region - there are more and more signals coming from the markets in this regard: claims expenses are increasing at a significantly higher pace than premiums. How do you see this trend's evolution in the near future? Will be 2022 a year of scarce profitability or even of loss in the regional insurance industry?

M.K.-B.: Our clients need to adjust premium levels as claims expenses are increasing, but of course there is always a time lag. For some markets in CEE, this is not the first time they are facing high inflation, and their previous experience will help them steer the business in the right direction.

Let's also not forget that if we do not capture inflation correctly in our risk evaluation, we are underinsuring people who are going to rely on insurance in critical times of need. So, the need to capture inflation correctly in all lines of business is also about closing the protection gap further. This is particularly important here in the CEE region, where underinsurance is an important topic and common in all markets. Of course, given the current economic circumstances, it is not an easy task for insurers to have discussions with their clients about underinsurance respectively adequate insurance.

The silver lining for insurers within the current challenging environment is that we are exiting the low-for-longer and negative interest rate environment and insurance companies will benefit from this development over the medium and longer term.

XPRIMM: What do you expect to the results of the renewals this year? Should CEE cedant insurers expect a changing relationship with their reinsurers?

M.K.-B.: Clearly, we are all facing many challenges at the same time: high inflation, climate change, natural catastrophes, supply chain issues, etc. Nonetheless, we will consider individual circumstances by market and by client, and together we will find the best solution for our clients' needs.

 

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