“Increased capacity had smoothed the market and created an imbalance between reinsurance demand and supply,” Lot said. “However, reinsurers have generally been unable to cover their cost of capital, let alone meet shareholder expectations and generate new capital to support client needs.”
Mitchell added that terms and conditions had “drastically deteriorated” over the past decade, with reinsurance structures increasingly covering earnings volatility rather than capital preservation.
“The wording of contracts has become broader and has pushed the boundaries of what reinsurers intended, as evidenced by disagreements over Covid business interruption (BI) claims,” Mitchell said. “At the same time, the risk environment has become more challenging with globalization and increased litigation. Newsrooms must keep up with these developments.”
Mitchell noted that financial markets had been hesitant to provide new capacity in cat bonds, sidecars and other alternative capital instruments this year, which spelled disaster, and limited reversal availability, when combined with rising interest rates. . For Mitchell, this is what ultimately caused the unique delay and stress of the January 1, 2023 renewal period.
Lot said Swiss Re’s strategy for supporting its clients and brokers through the tense renewal process had been to “be predictable and consistent.” Swiss Relisted early, typically before Thanksgiving, with significant leading actions that helped its clients manage their own stakeholder and board expectations well in advance of the renewal period.
When asked if Covid losses continued to be a key talking point at renewals this year, as they had been in 2020 and 2021, Mitchell answered in the affirmative, albeit for a different reason than in previous renewal periods.
“Covid was a topic of conversation this year, but more from the perspective of concluding ongoing discussions on BI claims with partners,” he said. “This really came down to a major question of how to accumulate losses.”
Mitchell added that the pandemic had provided the reinsurance market with vital lessons on how reinsurers took into account previously unthinkable scenarios to make the world more resilient. He also made reinsurers realize how much clarification the terms of their contracts needed so that all parties were equally clear about what reinsurance policies did and did not cover.
“Key issues included strikes, riots and civil commotion, and undamaged business interruption, specifically around critical infrastructure,” Mitchell said.
“A number of challenging issues about what and how risks are covered by reinsurance contracts [remains]”, he added. “For the industry to attract enough new capital to meet significant growth in demand, we must continue to work to address systemic risk issues.”
