Reinsurance price increases seen so far have been "timid," according to Thierry Léger, group chief underwriting officer at Swiss Re AG.
Léger told journalists Sept. 8 that although reinsurance rates had been increasing, "they have been hardly enough to offset the interest rate decline of the first half of the year." He added that the price increases had also "by far not been able to compensate for many years of premium decline before and they have in no way been able to compensate for the increased claims load that we have been observing around us."
As a result, Léger said, there was "a real need for strong price increases to get back to underwriting profits." He added that he did not believe the industry had yet reached a point where it could cover its required returns, and "so we are very much on the reinsurance side at the beginning of a hopefully longer trend" of price increases.
The reinsurance industry's situation has worsened in 2020, Léger said, because of a combination of low interest rates, claims inflation through increased litigation and climate change, as well as claims from the coronavirus pandemic and the active North Atlantic hurricane season.
The trends affecting reinsurers are likely to persist, Léger said. The low interest rate environment "is here to stay for longer and might even get worse for the years to come," and litigation-fueled claims inflation "has been with us for many decades and will remain there, ad will have an impact on our casualty lines."
He said there would be more coronavirus claims to come, noting that the industry had so far booked $20 billion in coronavirus claims and reserves against Swiss Re's industrywide estimate of between $50 billion and $80 billion in ultimate claims. He also pointed out that while some countries were still fighting the first wave of the pandemic, others were already tackling a second, and that there is uncertainty about when vaccines will arrive and how effective they will be.
"COVID-19 has not only had a very large impact already, it is going to remain with us for quite a while," Léger said.
While acknowledging his overview of the reinsurance industry's challenges was gloomy, Léger said he had "a very positive outlook on the industry." Post-pandemic economic recovery was already evident, he said, adding that the virus had heightened companies' and individuals' risk awareness, which will "create more demand for insurance."
He also pointed to the "huge" gap between economic losses and insured losses, often referred to as the protection gap, which he said "represents a major opportunity for those companies who are tackling the current challenges and are getting ready for the future to actually harvest the profitable opportunities that I see out there."