Q&A: Jean-Jacques Henchoz, A bespoke approach

The (re)insurance industry is facing a telling moment in its history. With the persistent soft market, regulatory challenges, and disruptive forces from outside opportunists and a changing world, the victors will be those that see the cup as half-full and seek out prospects whilst carving new paths. This is not an unfamiliar concept for Swiss Re, which is opting for a more bespoke approach to get closer to the customer. Global Reinsurance editor Samera Owusu Tutu talks to Swiss Re chief executive reinsurance for EMEA Jean-Jacques Henchoz about the Swiss Re approach, industry opportunities, and what’s on the horizon for Europe. Coming into this twentieth year at Swiss Re, Henchoz is well-placed to assess the current (re)insurance landscape for Europe and beyond.

What are the top three market challenges moving into 2018, and how will they impact renewals?

We’re currently in transition regarding reinsurance market dynamics. The landscape has changed since last year, as there has been a great deal more heavy loss activity. We’ve had a series of larger events – hurricanes in the US and the Caribbean, and earthquakes in Mexico – which will very likely have an impact on market rates. While it’s too early to give any precise numbers for these events, it’s clear that they will dominate discussions in Baden-Baden.

The current lack of growth continues to be a significant challenge in both primary insurance and reinsurance, so it’s important for us to discuss growth opportunities in our negotiations with insurance companies. For some market players, this will mean expanding into new geographies or segments, while others, may pursue non-organic growth scenarios. Either way, the big issue lies in expanding the scope of insurability.

Ultimately, the changing regulatory landscape will continue to have a material impact on our industry. Opportunities will continue to arise for reinsurers in the form of supporting the efficient and effective implementation of solvency requirements, as well as adapting to new regulations.

What kind of impact is Brexit having on Europe as a whole?

Most (re)insurers who are active in the UK market will continue as before, and this is clearly the case with Swiss Re. A key part of our life and non-life business operations based in the UK, and we remain fully committed to the UK market. What we hope to see is a clear outcome with regard to the recognition of regulatory regimes, particularly with making sure that there is regulatory equivalence between the UK and the EU, which will allow us to continue to operate with hopefully a minimum of disruptions in our operating model.

“…to understand the risk and to be able to model it accurately, you need to have greater transparency on loss activity.”

Where are the pockets of opportunity for the industry? What’s still making money for the European markets?

Despite the erosion of margins in recent years, particularly in commercial lines and in motor, European business is generally sound. This is partly due to the recovery of some European economies, which should have a positive impact on the primary insurance industry, and indirectly on our reinsurance industry.

Part of the growth opportunity for us in Europe lies in teaming up with our key customers and expanding our partnerships with them in different areas. This can be in the form of capital solutions to support their growth strategies or to manage their balance sheet more efficiently, or, in some cases, to restructure their portfolios and put them into run-off or even seek legal finality. For us at Swiss Re it’s really about expanding our partnerships with our long-standing clients and staying relevant to them as they pursue their strategies in Europe.

So the key is to get closer to the customer and work in a more collaborative and bespoke fashion?

Absolutely. While our core book of business remains very important and continues to be managed actively and renewed year to year, there are also a number of new growth avenues, and for us it’s all about identifying these growth avenues with our customers and identifying where reinsurance can be used to achieve their goals. We need to use our knowledge and expertise across markets and lines of business to the benefit of our customers. The philosophy is to create ‘virtual joint ventures’ with our business partners.

At the Swiss Re Monte Carlo press conference, Swiss Re mentioned that cyber was still not within the realm of understanding for the industry, and it seemed that you were hesitant to cover it; at what level and under what pre-requisites should the reinsurance industry be prepared to take on cyber risk?

I think it’s important for us to confirm that we do write cyber risk. We have active treaties covering cyber risks - either as standalone - treaties with some key customers or in the context of existing treaties with limited exposures. However we still need to do a lot of work to improve our understanding of the exposures, which will enable us to manage them taking into account the evolving nature of the risk – especially with regard to the heavy accumulation it involves.

Part of the problem is that to understand the risk and to be able to model it accurately, you need to have greater transparency on loss activity. Currently, European companies affected by cyber attacks tend not to talk about them, so we don’t have full transparency. A prerequisite for developing the cyber market would be to gain more transparency on cyber related losses. We need to understand them to ensure a more thorough risk assessment.

Another important aspect at the top of the list of our agenda is to make sure that companies increase their resilience, preparedness and protection against cyber risk. We are still at the beginning of the development, and there are still many corporates and public entities that are not yet sufficiently protected. Great efforts are required to face major cyber attack. So in a nutshell, we are active, we’re investing into the management of cyber risk and we are teaming up with some of our customers, cyber security firms, industry associations and academia to develop new cyber products.