The FINANCIAL — Increasing M&A activity, low interest rates and regulatory changes are some of the opportunities and challenges in focus for insurers and reinsurers. Swiss Re puts capital and expertise to work, proposing solutions that will support its clients in dealing with the issues ahead.
Stefan Lippe, Chief Executive Officer, said at Les Rendez-Vous de Septembre in Monte Carlo, the annual international insurance convention: “A number of challenges lie ahead. Insurance demand in emerging markets is increasing, while the developed markets remain stable in the near term. Many societies will face pension funding crises as a result of ageing populations, and insurers will need to find ways of coping with extended regulation. M&A activity is likely to increase sharply in the insurance industry in the coming years. All of these involve requirements that play to Swiss Re’s strengths, including deep reinsurance expertise, a proven track record for innovation and an excellent capital position.”
The (re)insurance market – mixed outlook ahead
Commenting on the state of the (re)insurance market, Brian Gray, Chief Underwriting Officer, said: “Much lower interest rates and weaker underlying underwriting performance are battling against excess capital in the market. The environment is likely to remain choppy. A broad-brush market movement is not expected in the run-up to the January renewals, and we will focus on a client and market segment specific approach. Based on Swiss Re’s cycle management approach, we continue to offer our clients significant and reliable capacity for adequately priced risks.”
Brian Gray suggests that a key challenge for the industry is lower investment yields, which have dropped significantly since late 2008. “This means a fundamental shift in the underwriting margins is required for a given level of profitability.”
Property & Casualty is experiencing a classic late soft cycle. Many companies are relying on reserve releases, and substantial parts of the business in the market are priced at levels that destroy value.
Although the first half of 2010 was characterised by claims events, further catalysts are needed to turn the market as a whole.
Solvency II set to change the way insurers do business
New regulations and higher solvency requirements will add pressure to insurers’ balance sheets, and increase the need for capital. Michel Liès, Chief Marketing Officer, said: “Solvency II will have a significant impact on the strategy and performance of European insurance companies, and the way that companies choose to run their businesses.”
While the industry remains broadly in favour of the principles behind Solvency II, it is keen to ensure that the so-called implementing measures are not excessively conservative. “We are at a critical juncture,” said Liès. “The QIS 5 exercise (fifth Quantitative Impact Study for Solvency II) is underway, and the debate on implementing measures is vital and could have implications not just for companies but for the competitiveness of the entire European market. QIS 5 will be key for insurers to understand the expected impacts.”
More than just a compliance exercise, Solvency II should represent a major step forward for insurance companies, allowing them to make the move from a factor-based approach to a more realistic economic risk-based approach.
Reinsurance will be a powerful risk management tool under
Solvency II, said Michel Liès. “Swiss Re has the experience and products to assist clients with their Solvency II needs.”
Demand for holistic, integrated solutions on the rise
“While demand for classical reinsurance is still subdued, we see increasing client requests for more comprehensive, holistic and integrated solutions, in conjunction with the challenges that lie ahead, such as regulation and longevity. Offering expertise and experience in addition to capacity, and being at the forefront of new research and product development, Swiss Re’s ability to deliver on evolving customer needs is second to none,” concluded Stefan Lippe.