A reinsurance ‘big bang’ has made everyone think twice on profitability, says Swiss Re’s Kera McDonald

Insurers have a sharpened focus on profitability after taking on more risk from the reinsurers, says Swiss Re Corporate Solutions’ Chief Underwriting Officer, Kera McDonald.

Speaking in the latest Voice of Insurance podcast hosted by Mark Geoghegan, McDonald said primary insurers have faced a reinsurance reset.

McDonald, part of Swiss Re’s corporate primary insurance arm, said the transition started last year and fed through into this year’s January reinsurance renewals.

McDonald said: “There were several years of catch up that caused that big bang, if you want to call it that, at the beginning of last year for the reinsurers.

“That means that for us as an insurer, and for all of my competitors, we now retain a larger part of those frequency losses.

“We need to have a much more focused approach to the modelling of the secondary perils that I think it took the industry a while to catch up on – the wildfires and the floods and the hails and things like that.

“And so I do believe that it made people really think twice about the profitability, especially on the cat side of what they have and the volatility they need to cover themselves.”

Explaining underwriting actions taken, McDonald said Swiss Re in the US exited the large general liability corporate market space.

Discussing priorities, she said it was important to understand the underlying drivers behind inflation. This would help mitigate claims.

However, there would always be something ‘unknown,’ creating the volatility which reinsurance would partly cover.

Asked by Geoghegan about rates, she said: “North America property right now, we believe, is well priced.

“I think that when you look into EMEA (Europe, Middle East, and Africa) as well, Europe is attractive for core property also. Casualty remains profitable for EMEA also.

“APAC (Asia Pacific) and LATAM (Latin America), they’re growth areas for us. Across most of the lines actually, it is looking relatively stable, which is a good place to be.”

Questioned by Geoghegan on cashflow underwriting, the idea that insurers could use interest rate-buoyed asset income to soften prices, pull in volume but with combined rations above 100 per cent, McDonald said ‘you have to produce profit as an underwriter not just as a loss leader for asset income’.

Looking to the future, Geoghegan brought up the topic of digitalisation.

McDonald said: “So we’re really working around, right now, reducing manual work, reducing the cost that goes along with that, and enabling our people to focus on the value-added parts as opposed to the repetition parts.

 “So, things like ingestion of data. I mean, that was a relatively easy one to spot as far as a place that could add value.

“We’re working on that. We have several use cases that are going with the data group from the Swiss free Institute, as well.

“It’s really around augmentation of our underwriting process in decision, rather than any kind of substitution at this point. So that’s really where we’re heading with it, at least for now.”