In the News
Swiss Re: Prices to Rise to Cover Increasing Loss Trends

• Timothy Darragh
• October 2020
• 

Rates across all lines have been on the rise in the ongoing low interest rate environment—trends Swiss Re said it expects will continue through 2020.

Despite the challenges of interest rates, increasing natural catastrophes and other pressures, Thierry Leger, group chief underwriting officer, during a media conference said he has a “very positive” outlook for the industry. Data suggests the recovery from the COVID-19 shock to the world economy is under way, he said, and the pandemic has raised risk awareness for consumers and businesses and will lead to more demand for insurance.

Swiss Re expects prices to continue to rise, due in part to the need for prices to cover increasing loss trends, it said in a statement.

“Even before the COVID-19 crisis, most major markets were operating at below-average profitability,” said Moses Ojeisekhoba, Swiss Re's chief executive officer, reinsurance. “To be able to address the growing need for insurance protection in a sustainable way, further price increases across all lines of business are clearly needed.”

Hurricanes have been hitting areas where exposures have grown as a result of wealth accumulation, Swiss Re said, leading to increasingly severe losses, as demonstrated in the past few years.

The year 2020, it said, “is forming up to be no better,” as the Atlantic hurricane season is the first on record to see nine tropical storms forming before August and 13 before September. The situation is aggravated further by the higher frequency and severity of floods and wildfires, leading to rising claims and highlighting the need for insurance protection, it said.

Those secondary perils are worsened by climate change, said Leger. In addition, social inflation and unpaid claims related to COVID-19 make price increases essential, he said. “We see a real need for strong price increases to get back to underwriting profits.”

Swiss Re said the low rate environment will persist as governments struggle to prop up their economies from the ravages of the pandemic. “Low interest rates have been a feature of the last decade, and have prompted insurers to invest more in higher-risk, higher-yielding assets,” Swiss Re said in a paper. “However, the implementation of strict solvency frameworks in most jurisdictions has made some asset classes more costly. Portfolio yields have declined and we expect this to continue with the recent further drop in market rates. Re-designed products, repricing and capital optimization are crucial to boost insurer profitability.”