Strategy and priorities
Our Reinsurance strategy is based on excellence in our core business and smart expansion in selected pockets of growth. By continuously striving to improve the value of our products and services for our clients we make ‘client centricity’ our overarching theme.
Excellence in our core businesses is predicated on underwriting as a key differentiator based on industry leading cycle management and portfolio steering. This includes the steering of peak perils, our risk transformation capabilities, and research and development. As a few examples, in Property, we have our own research team and models for storm, earthquake and flood. In Casualty, we are developing a forward-looking ‘nat-cat-like’ model based on a systematic assessment of risk drivers. In Life & Health our unparalleled mortality experience data allow us to better quantify the underlying risk.
Our key value drivers are large capacity, technical expertise and the ability to develop tailored solutions to meet clients’ needs, for example in the area of solvency relief. In addition we have a market-leading position in transferring both property and life risks to the capital markets.
We see growth opportunities in longevity and health as well as high growth markets such as China, India, Indonesia, Brazil and Mexico, where we are pursuing opportunities with tailored approaches and dedicated resources.
Property & Casualty
Active cycle management and portfolio steering remain Swiss Re strengths. In 2012, we continued to deploy capacity to those segments where we expect to achieve the most attractive return on our shareholders’ capital. We continued to invest substantially into research & development as a value driver for underwriting to maintain our competitive advantage.
Loss activity in 2011 drove natural catastrophe rates up in 2012, especially in loss-affected markets, and we were able to capture profitable growth. Property and specialty reinsurance continued to deliver excellent earnings, each with a relatively high economic profit margin. Due to the prolonged period of low interest rates, profitability in casualty continued to be challenging around the world, particularly in the US. However, we saw a slowing of reserve releases and some positive price signals at the primary level, indicating some improvement in the market. We focused on large capital relief transactions as well as external run-off deals. As for the Reinsurance Business Unit overall, capturing opportunities in growth markets remained a key priority in P&C. Notable examples of this focus include our reinsurance cover for the Hong Kong-Zhuhai-Macau Bridge, as well as the tailor-made solutions and products we delivered in 2012 to reinsure China’s growing number of vehicles.
Life & Health
In 2012 the environment for Life & Health was more difficult than for Property & Casualty, with challenges stemming from low interest rates and declining premium volumes. Upcoming regulatory changes will encourage large primary insurers in Europe and Canada to retain more mortality risk, driving increased competition for the reinsured portion.
Our Life & Health growth strategy focuses on longevity and health. Longevity represents a very large risk pool that is expected to grow further as demographics shift. Swiss Re is a natural and efficient holder of longevity risk as it is a partial hedge against our large mortality portfolio and does not correlate with property and casualty risks. And given our unique ability to deploy large net capacity, we are well positioned to achieve significant growth in this area, as shown by the GBP 800 million (USD 1.3 billion) longevity insurance contract we closed in 2012 covering over 5,000 members of the pension fund of UK insurer LV=. The transaction confirms our position as the leader in the longevity swap market, having transferred over USD 12 billion in longevity liability to our own books. Our substantial investment into research and development is aimed at continually improving our ability to predict mortality and longevity trends.
Several major demographic and socio-economic trends are intensifying demand for commercial health insurance solutions, including: the greater healthcare needs of ageing societies; rising healthcare expectations of the new middle class, especially in growth markets; and healthcare finance reform, particularly in mature markets. Swiss Re offers a variety of health reinsurance solutions to meet these needs, from short-term protection against the risk of volatility in medical expenses for insurers or employers, to very long-term protection against the financial impact of disability or critical illness.
We believe we are well positioned to capture the market opportunities ahead of us. Our excellent capitalisation allows for business growth and continued dividends to the holding company.
We believe that the main factors driving reinsurance market prices – interest rates, regulatory changes, inflation, reserve adequacy, industry capitalisation and natural catastrophes – indicate higher prices for reinsurance and we aim to benefit from this trend in Property & Casualty. In Life & Health we will continue to actively manage our in-force book to increase profitability and develop new solutions to grow, particularly in longevity and health.