Swiss Re expects up to €5bn new catastrophe reinsurance demand in EMEA

Global reinsurance company Swiss Re said this morning that it anticipates rising demand for natural catastrophe reinsurance, with up to €5 billion of additional demand expected for the EMEA regions cedents alone this year.

Speaking during a briefing held in advance of the Baden-Baden reinsurance meetings that begin this Sunday, Thorsten Steinmann, Head Property & Casualty Reinsurance, Northern, Central & Eastern Europe at Swiss Re, explained that the company is anticipating higher demand at the end of year renewals.

Swiss Re itself has an appetite to further grow its natural catastrophe reinsurance book, Steinmann explained this morning.

The reinsurer is expecting inflationary effects to pressure claims costs, while also elevating exposure values as well.

Demand for reinsurance in general is expected to increase, with geopolitical uncertainty and the macroeconomic environment seen as key drivers, Steinmann said.

New risk pools are expected to drive growth, with digitalisation seen as a catalyst that will drive more reinsurance capital deployment opportunities.

Higher risk awareness and increasing insurance penetration are also seen as drivers for the EMEA region and an increasing need for reinsurance capital.

Swiss Re’s Institue estimates that the P&C reinsurance market in Europe will grow by 3.5% annually until 2033.

Even when high levels of inflation subdue, Swiss Re is anticipating that insured property losses will continue to grow at 5–7% per year.

With secondary perils still a driver of volatility and 2023 heading for at least an average level of annual catastrophe losses, the expectation is that catastrophe reinsurance demand will also rise.

Steinmann said that, “We do expect there will be demand for additional natural catastrophe reinsurance cover and in only this one example it could be up to €4 billion to €5 billion in EMEA this year.”

As much as €1 billion of the increased catastrophe reinsurance demand that could be seen at the January 2024 renewals is expected to come from Germany alone, Swiss Re said.

Jens Mehlhorn, Head of Property Underwriting EMEA at Swiss Re, went on to highlight where additional demand for catastrophe reinsurance is expected to manifest.

He explained that, “There is only a limited supply of new capital and this new capital has a clear price tag, as it competes with a record risk-free interest rates.”

But he added that, “We hear from our clients that they want to buy more reinsurance protection on the top, while we see only very limited new capacity building.”

As much as €5 billion of new demand for catastrophe reinsurance from EMEA alone will help to absorb some of the new capital that may flow into the market.

Similar dynamics are expected globally, with the US market likely to see demand increasing at a higher-rate.

There is also the issue of some ceding companies having purchased less reinsurance a year ago, when rates rose so significantly at the January 2023 renewals, that now, with January 2024 fast approaching, they have gaps and also inflationary effects to fill within their reinsurance towers.

Ultimately, demand for reinsurance capital is expected to increase in 2024 and so far we haven’t seen the inflows, capital raises, or new company formations to satisfy all of that, which should all serve to support pricing at the renewals.