Swiss Re’s Léger: Wrong to say industry is “running away” from secondary perils

As the industry continues to face criticism over its response to unmodelled risks, Thierry Léger, group CUO at Swiss Re, has said it’s wrong to say “we are running away as a company or an industry from secondary perils”, and that a more cautious approach is needed.

In an exclusive interview with The Insurer TV as part of #ReinsuranceMonth, Léger said: “We are actually trying to make everything possible insurable but obviously, we have to be careful when risks are unmodelled.”

He highlighted that Swiss Re is more concerned around unmodelled secondary perils such as wildfires in California as well as hail. 

However, not all secondary perils are off the table and Léger said the group has modelled over 180 of these perils.

“We actually feel comfortable with those and we are growing those as we speak. We are very comfortable to deploy capital and capacity to those areas,” Léger explained.  

Big themes for renewals

With 1 January renewal discussions already well under way, Léger flagged the contract as one of the most important elements. 

He explained: “You have to know what it is that you’re insuring and clearly exclude what isn’t. This has been a very big lesson. You have to be very clear on your contract – clearly setting out your underwriting intent.” 

He also noted that people will “strongly look” at alignment of interests, focusing on the alignment between the reinsurer and insurer, and between the insurer and the ultimate client. 

Léger said he also expects social inflation to be “a very big topic”, as it’s a “real driver of loss”. 

He said: “People will look a lot at social inflation because social inflation obviously is spoken about a lot with regards to casualty, but it’s becoming very clear we will see this elsewhere. We have seen social inflation already in nat cat-related losses, for example.”

Sustaining necessary margins will also dictate Swiss Re’s renewal discussions. 

“We want to continue to make sure that we have the necessary margin to sustain the volatility that’s going to come our way,” he said.

“There is no underwriting, there’s no research and no contract that will prevent that volatility to come our way tomorrow, so we need to build the necessary margins and reserves to be able to weather those events. And weathering those events actually means to pay the losses when our clients need it,” he added.  

Opportunities 

The whole natural catastrophe area remains “a huge opportunity” for Swiss Re, according to Léger.

A volatile and riskier industry is “not a bad environment for those who know how to actually turn it into an opportunity”, he explained. 

Léger said he is aware of the challenges that exist and that once the “housekeeping is done”, underwriters collectively need to enable the power behind new technology to meet new demands and “to make [challenging] things insurable even if sometimes it feels difficult”.

He added: “For example, some people in my close environment, they think how can you even insure climate change, it’s impossible. And I’m telling them that actually when you understand the change, the pace of change that is induced by climate change, it actually becomes an opportunity for us.”

Léger also suggested there is growth opportunity in the specialty insurance market for the whole industry and also for Swiss Re, highlighting that the company has “lots of offer in that space”.

Finally, he noted that Covid-19 has been a “stark reminder” of personal resilience. 

He said: “Lots of people are thinking about their families because they see people dying around them from Covid and it has reminded them, is my family covered if the worst happens to me? And we can see in the short and mid-term an uptick in life and health insurance.”

He concluded: “I would say it’s a growing environment, it’s a volatile environment. You have to understand it, but it is an opportunity net of all the negative aspects.”