Swiss Re designs tailored deals in search of higher returns
19 Mar 2017 - 23:14
Zurich: Reinsurer Swiss Re, usually involved in mega-deals on natural disaster coverage, is branching out on its own to do individually tailored schemes to boost returns, such as one in China to protect farmers against floods or drought.
This tailor-made approach is part of Swiss Re's response to fierce competition in the reinsurance industry, where companies are being forced to find new ways to make money as their traditional model of clubbing together to backstop risks generates increasingly slim returns."We feel very strongly that our ability to figure out solutions to the problems that our clients have means they will give us opportunities," said head of Swiss Re's core reinsurance business, Moses Ojeisekhoba.
Low interest rates and competition from a host of so-called "alternative providers" such as pension funds has eaten into reinsurers profits. Up to 20 percent of the reinsurance market is now occupied by alternative providers, insurance industry experts estimate, a trend that began to take off in the years following the 2008 financial crisis. Insurance rating agency AM Best has estimated $75bn in alternative - or so-called "convergence" - capital entered the business in 2016.
This has put pressure on the market. Industry prices for the traditional property and casualty business, for example, fell again in January, the important policy renewals season, albeit at a slower rate than in the past few years. To combat the difficult climate, Swiss Re, the industry's number two, has pioneered the concept of tailor-made reinsurance, negotiating on its own with insurers to offer bespoke deals.