Swiss Re AG Q3 2021 Earnings Call (Q&A) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: William Fraser Hardcastle - UBS Investment Bank, Research Division - Analyst : Two here. Just first one on the catastrophes, second one on solvency. I guess eyed on European floods, the losses have come in significantly lower than initial market expectations. Any color here would be helpful. I guess, do you think it was due to a change in gross underwriting or a change in retro protection? Anything here that we should think about the sustainable benefits that will help the book going forward as well. Secondly, on solvency, also a positive print. I guess can you refresh how you view, let's say that 230% type SST level in terms of ability to support growth. But beyond that, I think what's the distributes? And what -- maybe what's the order of preference on to you've highlighted growth deployment, and then between excess shareholder returns and debt reduction beyond that? Thierry Leger Well I will take your first question. John, will take the second. On our improved underwriting results, I think, also, if you can go back to the Investor Day in November 2020, where we said what we would do. So we -- at the time, we're looking ahead, thinking that secondary perils, particularly those induced by climate change would continue to behave very rationally. And therefore, we said we would reduce our exposure to those levels. We also -- at the time, you remember, we also said we see social inflation as a big threat and therefore, reduce our exposure to large corporate risks in the U.S. So we did both of that. That actually led to a different mix. So I would then refer to the changes we did much more on the structural side. And whilst we always do improve our retro program that those changes to the retro setting don't explain this improved performance.

Question: William Fraser Hardcastle - UBS Investment Bank, Research Division - Analyst : You made the comment that secondary perils are underpriced. You've clearly taken a lot of action here, and you continue to see capacity pulling back. I guess this is a bit hypothetical, but in a world where perhaps everything has a price, can you give us any sort of crude estimate at just how much this is underpriced? I mean, are we thinking it's 10%, 20% or 50%? I know it differ by line of business, but just at what level we should consider Swiss Re stepping back in to take advantage of a potential opportunity? And then the second one is the inflation debate, which is heightened in recent months. Well, a majority of this is -- it's forward looking on certainty on longer-tail lines, I'd be interested to know if perhaps you've experienced anything already on the current portfolio, whether it be on the shorter-tail side or not? And which lines of business we should think about or where you actually would be looking under closest scrutiny in an inflationary environment? Thierry Leger Well, I will take your first one and John the second. So what price is required? One is the required price, and the other one is the price we think we can get in the market. So that's hopefully very different. But I will answer your question more technically maybe. I mean, technically, what we said in November last year with regard to secondary perils, technically, what we said is that there are some structural issues. So some of the covers that were placed in the market were in a frequency space, and exposed in a way to secondary perils that has no price in our view. So on those, we will continue to abstain. And so John referred to being ready to potentially grow into some of the space. That's not the space. So what we're talking about are areas where we think there is a price, and the pricing increases required in those spaces are substantial. They're definitely -- they can be above 100%, they can be above 50%. They're very, very high to make those insurable. But again, as I said, we also have to work on loss definition closes. These are tricky areas. We have to look at where those -- what type of secondary perils they are. We still believe that certain perils that are particularly exposed to climate change such as wildfires, hails, certain torrential rainfalls, so those areas or treaties, particularly exposed to these independent on where they are in terms of structure will probably remain close to uninsurable still in our view.