Swiss Re’s Lot: Five-year >$100bn nat cat loss record musn’t be sidelined in renewal discussions

With 2024 marking the fifth consecutive year of global nat cat losses surpassing $100bn, Swiss Re’s chief underwriting officer for P&C reinsurance Gianfranco Lot expects this to be a key factor in discussions as the industry prepares for the 1.1.25 renewal season.

US casualty is predicted to play a significant role in renewal discussions this year, and Lot told The Insurer TV that the industry can’t put aside the significance of the loss figures being reported for nat cat.

Before 2019, insured nat cat losses had surpassed $100bn only four times. However, since 2020 this figure has been exceeded every year, and 2024 is shaping up to follow the same trend.

Lot attributed this to several factors, such as the increasing complexity of everyday goods, which results in entire systems needing to be replaced when a single part breaks, rather than simply fixing the faulty component.

“One of the accumulation risks we've observed over the years is that assets, such as houses and cars, have become systems. When you get a dent in a car today, it costs you $1,000, $2,000, or $5,000, whereas several years ago, it would have cost $120 or $150,” explained Lot.

Another factor driving up losses is the increased severity and frequency of nat cat events, which Lot partly attributes to climate change.

“We just have more frequent events,” he said. “This is observable, and this is due to climate change that has been going on for the past 100 years.

“Finally, the events themselves have become much more severe. So if you look at the hailstones today, you have tennis balls as opposed to golf ball sizes, and this clearly has a very different impact on the insured losses, and that's what we see in the data,” he added.

CrowdStrike and geopolitical issues set to spark conversation in Monte Carlo

Lot also anticipates that cyber risk will be a significant topic of discussion at Monte Carlo, especially in light of the recent CrowdStrike outage.

Many in the industry suggest that the widespread nature of the outage could spark discussions about rate increases in the cyber reinsurance space.

“I expect significant discussions around cyber, particularly regarding the availability of coverage following the CrowdStrike event. There will likely be conversations about coverage terms, including waiting periods,” Lot said.

He added that the cyber line would likely see increased activity post-CrowdStrike, as clients seek reinsurance, potentially to accommodate the influx of companies arranging coverage after the event.

“Cyber after CrowdStrike, is an area in which clients also look for growth opportunities,” said Lot.

Another theme Lot expects to be discussed at Monte Carlo is around current geopolitical issues and the impact these will have on the reinsurance industry, particularly in terms of increased SRCC (strike, riot, and civil commotion) losses.

“We live in a world where there's more tension. This is true politically and it’s also true from a war perspective,” said Lot.

He added that the challenge with SRCC risks is that local issues can quickly escalate into broader geopolitical problems.

“SRCC is a global phenomenon,” he said. “While we see tensions locally evolve, there's often larger themes at play that the local tensions connect to, and that can have a larger impact,” explained Lot.

Lot said Swiss Re would limit its SRCC exposure if needed by writing policies only in certain geographies, setting boundaries with clauses, and correctly pricing the risk.

“The way we manage our SRCC exposures is by ensuring that we have it under control and by monitoring the exposure in our treaties,” he said.

“We have geographic limitations and hours clauses that delineate the exposure. But of course, there is always an accumulation risk. We underwrite it properly, and we attach a pricing tag to SRCC,” Lot concluded.

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