Swiss Re is planning a big increase in sales of natural catastrophe insurance despite a series of heavy claims in recent years.
Along with other insurance companies, Swiss Re has had to pay out billions to cover the costs of storms and wildfires in the US, and typhoons in Japan. Some in the industry say climate change will make these sorts of events more frequent and costly.
But Christian Mumenthaler, chief executive of Swiss Re, said now was the right time to be selling more cover against the costs of natural disasters.
“The industry has seen massive losses from natural catastrophes since 2017,” he told the Financial Times. “We see there’s an opportunity for growth.”
Swiss Re specialises in reinsurance — selling cover to other insurance companies that want to reduce their own risks. It estimates that the market for natural catastrophe reinsurance will grow from $30bn to $40bn by 2023.
Price rises will help. The high costs of recent disasters have pushed prices for reinsurance in some markets up 20-30 per cent. And some primary insurance companies such as AIG have committed to buying more reinsurance as a way of reducing volatility in their own business.
“We have come out of a period where there was very little growth in demand,” said Mr Mumenthaler. “[Primary] insurers grew by retaining more risk . . . we see more growth going forward.”
Mr Mumenthaler said putting Swiss Re’s capital behind natural catastrophe business was preferable to returning it to investors via share buybacks.
Last month Swiss Re cancelled the second half of its SFr2bn share buyback plan, saying it needed the capital to fund growth and pay claims.
“The buyback was a tool we needed if we couldn’t deploy the capital but that was not the case,” he said, adding that the natural catastrophe business would provide attractive returns to investors. According to Swiss Re, the return on capital for the business will be roughly 18 per cent this year.
In a presentation to investors on Monday, Swiss Re will say the amount of capital it had backing natural catastrophe risks — a proxy for the amount of business it does in the market — rose 36 per cent in the year to June.
It will also say the amount of natural catastrophe business written this year is expected to increase pre-tax earnings by $150m.
The insurance industry has been shocked this year by claims inflation from some of the recent disasters. The phenomenon of loss creep — in which the estimated insurance costs of catastrophes gradually rise — has become a big concern. The cost of 2018’s Typhoon Jebi in Japan, for example, has more than doubled since initial loss estimates of about $6bn.
“Jebi was the first major typhoon in 20 years, so there was less experience of them,” said Mr Mumenthaler. “Our scientists are looking at the models, in particular the flood models in Japan. It’s a constant learning experience. We have new data points.”
Mr Mumenthaler said Swiss Re still wanted to split off ReAssure, a UK-based life insurance company in which it has a 75 per cent stake. The company pulled its initial public offering this summer, which would have valued the unit at about £3bn, citing weak investor demand.
“The strategic North Star is the same — we plan to deconsolidate the business over the medium term,” he said. “All options are open.”