Swiss Re AG (SREN) Earnings Call Transcript & Summary

Okay. So hello, everyone. Welcome to Swiss Re's Rendez-Vous de Septembre 2026 Media Conference. I'm Charlotte Nelson, and I'm responsible for P&C Re Media Relations at Swiss Re. Joining me here today is Urs Baertschi, our CEO, P&C Reinsurance, and Gianfranco Lot, our Chief Underwriting Officer, P&C Reinsurance. In the next hour, we want to share our perspective on the forces impacting the reinsurance markets, what it means for demand for underwriting and for reinsurance. And we will do so by Urs and Gianfranco will walk through our presentation first, and then we will open the floor for your questions. I think, with that short introduction, Urs, the floor is yours.

[indiscernible] and good afternoon, everybody. Welcome, and thank you for being with us here today. I will start at a fairly high level, and we'll get -- we'll zoom in progressively here, and then Gianfranco is going to get into the real details when he takes over. I want to start with the factors that are impacting the reinsurance and insurance industry globally. When we just look at the reinsurance industry and we think about the capital base here, there's a strong capital base of about $660 billion out there. I'll show you more details about that in a bit. The main message here is it's important for the reinsurance industry to have a strong capitalization, strong balance sheet. And I'll tell you more about that in a second. We're also seeing that the cost of building, the cost of repairing, the cost of claims keeps going up due to inflation in general, due to claims inflation, and a lot of that also has to do with supply chain bottlenecks. So we'll explore that in a bit. When we look into society, there's more unrest in the world. And there's more discontent with established structures, with companies, and people are going to the street. We'll look at that. On weather, for those of you who are in Europe, it was a hot and dry summer. I don't have to tell you that. The phenomenon of extreme weather is something that we're faced within society as well as in our industry, more and more so. It translated into $220 billion of economic losses last year. Only $120 billion were insured, which means the protection gap of $100 billion from NatCat alone was the case last year. And then there's a lot of investments. Some of you were present on [indiscernible] when Gianfranco and our Chief Economist, Jerome, presented our latest sigma study, which focused on the enormous CapEx investments that are coming to back these infrastructure investments in data centers, in energy transition and infrastructure more broadly. This is also a massive opportunity for the insurance industry to step up and enable those projects as part of our effort to provide resilience to societies and economies. So this is all around us. Let's go a little bit deeper. And we're going to talk about supply chains. And the way to think about this, there's a number of different factors that impact the inputs into the insurance industry. And the way that they manifest themselves are also various dimensions. So we can think about geopolitics. We can think about technological innovation. We can think about peak risks. All of that could have an impact on growth, on inflation, on investment dollars and how fragmented the global economy is. Some of these developments, the arrows up might be good or bad. Some of these, the arrows down might be good or bad, generally speaking. So it's a complex equation. But the main message is, all these factors contribute the supply chain bottlenecks and the disruptions to drive up cost. And so there's inflation, and it just costs more to build and to repair when there is a claim. And it's a lot more volatile. It's not as predictable as before, and you could have some serious supply chain disruption that provide a lot of short-term disruptions. It's structural where it's a bit more volatile overall. And then the economies are much more local, and that also contributes to that interruption. Now let's go back to the capital piece, right? It's important that the reinsurance industry has a strong capital base [indiscernible] growing demand, right? So demand is rising from insurance companies. Demand is rising from the public sector. There's more exposures, there's more values, there's new risks. And as a reinsurance industry, we need to take out the volatility so that the insurance companies can provide their product at a cost-efficient way to the end customers, right? And it only happens if we are resilient in our capital base. About a little bit over 10% comes in the form of traditional reinsurance capital. The rest we think of as alternative capital as well. Alternative capital is an important part of the capital stack and the opportunities that insurance companies and buyers of this kind of protection have and also very importantly, supports the traditional reinsurance capacity. So you've seen the rise over the last few years. This is a good thing because the demand and the risk and the exposures are going up. I talked before about social tension in society. And if you look at the number of demonstrations and compared to just a few years ago, they're up significantly. There's some populist movements out there. There's a general discontent with companies, with establishment. There's just a higher sense of grievance in society out there. And when we look through then, there's multiple dimensions around this topic, but one of them is, of course, when this happens, there's also losses, and this is human-induced losses, where, for example, if you look at the riots in South Africa, in the U.S., in France, these are $1 billion loss events, right? So they're not small. And so we need to actually think in our industry through of what are the societal dynamics around the world, meaning for our business, and how in the aftermath as well as before by resilience, because ultimately, the insurance industry is a force for good because we are here to invest in society, and people need us the most. This is not a new topic. I said it last year, I said it the year before. I'm going to predict that I'm going to say it next year. We're very concerned about what's happening in the legal system in the U.S. in particular. Some of that is also spreading to other parts of the world, but not to the same extent. Fundamentally, in the U.S. under the legal system there and aided by the influx of third-party litigation funding, the verdicts that are being given by juries against ultimately the deep pocket, which oftentimes are the insurance companies go up at a rate and to amounts that were not anticipated at the time when their business was written. It's much, much more costly at a much, much faster rate. And in the aggregate, if you think about the commercial liability insured losses last year of $174 billion, that's U.S. commercial liability. Compare that to global NatCat insured losses global of $120 billion, that gives you sort of an order of magnitude, idea of what this is, and these record verdicts that just keep coming up more frequently and they keep getting higher. Ultimately, this is a cost to society. And there are studies out there that would indicate that on average for the U.S. household, the cost of this is over $4,000 per U.S. household per year. And you see this when you go to the grocery store or to the home improvement store, that's where you see this cost come through. And it's a big driver of why those prices are going up as well. I'm going to end before I turn it over to Gianfranco to talk a little bit about AI. This is the big topic for us in the industry as it is around the world for other industries and for society more broadly speaking. But it's a technology that fundamentally allows us to do certain things more efficiently to make better decisions and to ultimately use the resources that we have to grow more and to innovate more. Now that's the exciting part. But when it comes to AI, there's also an element of defense that comes with it. On the one hand, all the exciting stuff also means that the bad actors actually get a lot better. And so we have to lay defense against that. There's critical infrastructure that's involved here from energy to data centers and so on. And there's a concentration and accumulation risk because all of these data centers are in the same place and if we have a tornado go through, there's a lot of losses that can come with that because they're really expensive. And then ultimately, when we think about this world of more and more interconnected and faster-moving risks, technology is certainly a big factor and in the center of many of these discussions, both in terms of risks today, but this permeates the supply chains to liability and things like that. So it's a big factor of that, and we're paying attention to it as well. I'm going to turn it over to Gianfranco to take you even deeper into these topics. I'll be back for Q&A.

Thank you, Urs. Thank you, and welcome also from my side, and thank you for your interest today. So [indiscernible] catastrophes is also not a new topic in Monte Carlo. But what got forgotten a bit is that we had benign NatCat years on the reinsurance side, but the underlying continues to [indiscernible]. If you look at this chart here, you see the light green bars continue to be over $100 billion insured loss per year. And that's without having a big NatCat event. Remind us all that in 2011, we had 2 earthquakes, 1 in Christchurch in New Zealand and 1 in Tohoku in Japan, and that's the dark green bar there in 2011, right? Those spikes are -- they recur from time to time. So these are NatCat events that are on top of the normalized insured losses that you see in the light-green bars here. So I just want to remind ourselves that there are earthquakes and there are hurricanes in the Northeast of the United States and, in fact, also in the Caribbean. And so we've taken a look at what would happen if we had an event in addition to the annualized insured losses that you see here, so that velvet bar there, and we attached the probability to it. There's a sigma study that actually states that quite in detail, but it would mean a $320 billion market loss from ground up insured loss. That's a significant number. Why is it so much bigger than the [indiscernible] or the bars that you see there because there's some inflationary aspects to it that we can't deny. Clearly, the losses, as Urs was mentioning before, more expensive. The reconstruction costs are more expensive. The concentration values have increased quite a bit. The urbanization has increased and therefore, also the insured values. And that brings us to this $320 billion. It's clear, we, as reinsurers, are here to protect our insurance companies from these types of disasters, and we provide significant capacity to the marketplace that does just that. If you look at Hurricane Andrew in 1992 and you indexed it today, it would be threefold in terms of impact, in terms of insured losses. By the way, the $36 billion is at today's prices. So if you go back at the prices of 1992, it would be $16 billion. So in the [indiscernible], but there's also positives that I want to highlight here after Hurricane Katrina, there were significant investments done in upgrading the infrastructure. And therefore, if the same storm would happen again, it would largely be the same insured loss. And that's a positive into learning from these kinds of events and invest in preventative different measures. If we dig deeper into the NatCat space, you can see here that the composition of these events over these years has shifted dramatically from peak perils. You see that velvet sort of area and the green area, the green area has just become larger. And I remind us all, we're talking about the same $100 billion. So the composition of the nature of the losses, the underlying has changed quite a bit. There's much more convective storms. There's many more wildfires, and there's clearly also more floods that contribute to that $100 billion, whereas there were hardly any earthquakes and hardly any hurricanes. We've all witnessed that in Europe, for those of you who have been in Europe, the wildfires have been catastrophic, some of which have been insured, are being insured and reinsurance and some of which, not so much, which is -- which points to the protection gap that still exists in many, many markets and countries. So the second -- what we call secondary perils, this green shaded bars, is 92% of the global insured losses in 2025. Clearly, we had, if you remember, the California wildfire losses, which was sort of a perfect storm with a lot of fire in the western part of the U.S., as an example. If we then look at the wildfire risk, in particular, wildfire risk according to our study that was complemented with the European Commission study, 96% of the European wildfires are man-made. There's somebody that lit the fire and then it just spread out. Of course, the conditions have to be met in order to -- for it to be spreading significantly and fast, the drought, the heat and the conditions that we saw in 2026 are a perfect context for wildfires to spread fast. But 96% are driven by human activity. So we consider this as a man-made loss as opposed to a natural catastrophe even though the conditions that promote this fire have to be -- in terms of natural environment. So the wildfire piece is inherently difficult to model. We have partnered up with [ Beware ] with a company that specifically is modeling wildfires with our own proprietary models. This is one of many models that we entertain and we invest in, but clearly, it's not a slam dunk in terms of determining how wildfires are propagated and how wildfires are modeled. We then move over to an interesting aspect of our extreme weather patterns. And as said before, we've all witnessed extreme heat in Europe, and clearly, extreme heat has been noticed all over the world. This is a product that we developed to link the payout of insurance to building resilience at town or a communal level. So in Arizona, we developed a parametric product that pays out if a number of days is above a certain heat -- certain degrees. And this payout is then linked to investments into strings into adaptation. And this was a nice example of how insurance contributes to the local resilience of the different citizens [indiscernible]. This is the first public private partnership that we've done so far, but there's numerous requests to replicate this type of product because we see, right? And we all acknowledge that the temperatures are rising, and with that also the problems with -- that comes with it, whether it's a critical infrastructure or whether it's actually people taken care of elderly, in elderly homes, cooling down schools and making sure that people actually can cope with the heat that is so extraordinarily high. So there's product development innovation going on in the NatCat space as well, which we're quite excited about. Now there's a lot of investments that go into modeling capabilities. You can see here, primary NatCat perils as 7% investments that go into the modeling of these NatCat risks, 15% in what we call secondary perils. So the floods, wildfires, trying to understand how these NatCat or these perils are driving into losses and are driving some of the extreme heat events, is something that the industry seemed to take really seriously, certainly, is taking to things significantly in new modeling capabilities, as I mentioned before. And also man-made perils, the wildfire bit, I was mentioning before, is also significant investments that go into that as well. So we've seen over the past years that there's a shift really from investments into underwriting capabilities into modeling capabilities that we feel is very, very important. We've established risk data solutions a number of years ago, which does exactly that and provides that -- those capabilities to our clients, which they're using it. There are 2 examples here I want to cite real quick. One is wildfire accumulation tool that helped a client to diversify their underwriting and to essentially write the same amount of business, but with less risk. And just having that insight, that modeling insight, help them to redirect our underwriting into areas which are less correlated with the existing book. And the second one is really about flood modeling. We've acquired a company called Fathom about 3 years ago. The granularity of these hazard maps is significant. It's down to 5 meters. And therefore, the ability to really understand where the flood areas are is so granular that it allows single risk underwriting in a much more efficient manner. Well, Urs said a lot about it already. These are the number of verdicts excess $10 million. It just doesn't stop. It continues to preoccupy us and concern us. And frankly, it's quite frustrating to see this continue to evolve in the way we see it evolve. And therefore, our underwriting appetite for new liability business is almost 0. We keep what we underwrite, but we don't want to enlarge our footprint in newest liability classes. As we see here, we don't see it stop or reverse. The trend is there to stay. There's also notable trends in terms of litigation funding and how the attractiveness of this, call it, subsector is really drawing in new capital. The latest is that these litigation funds are securitizing their funds and therefore, accessing the retail markets and therefore, attracting more investment into their funds, which is quite remarkable. A final word on data centers. We've done a specific Sigma on this and also Sigma launch on Saturday and just reiterating what I said before, it's an ecosystem of lines of businesses and insurance needs that is really rising as opposed to construction and property. The workers that work there need insurance. There's marine insurance for the or the power plants that are being built, there's liability insurance. There's a number of insurance classes that go with infrastructure investments. And that's where this makes it very, very exciting. We're obviously really well positioned because we're in all of these classes, very active and take leading roles, particularly in property and construction. The $91 billion opportunity that you see here is on the back of a $6.6 trillion investment by 2030. So the investments that are being done in data centers, but also in bridges, tunnels, in airports in the different infrastructure that are being developed in all over the world, not only in the U.S., elements this drive for insurance. And we think the capital that we showed before will all be necessary to cover all these risks going forward. So with that, I conclude my session, and we open up for Q&A.

Yes. So we would like to open up the floor for your questions. [Operator Instructions] So let's start here in the room. Any questions in the room? Yes, please, here at the front. Just a moment when microphone is coming.

It's [ Gavin Souter ] from Business Insurance. You illustrated the increase in the number of like convective storms and secondary perils. Are you seeing a demand for coverages to address those like aggregate coverages or frequency coverages? And if so, what's your response to those demands?

Yes, I'll take that, if that's okay. So yes, there is continued interest, I'd say, to address some of the frequency of scenarios that we've seen in the secondary perils, some of which are covered through the traditional Cat XL space or the traditional reinsurance. In terms of aggregate covers, there are some in place, which we also underwrite. So we're not absent of it, but our risk appetite remains the same, which means we continue to write what we have as opposed to add new ones, but it's a bespoke client-by-client and treaty-by-treaty consideration. If it's well structured and it addresses the issues of our clients, then we certainly have a look at. Because the modeling of the secondary perils are more challenging than the peak perils and our intervention is typically at a level which is more a capital-driven level as opposed to an driven level.

Okay. Thank you. Any more questions in the room? Yes, at the back, please.

[ Jack Willard ], Artemis. Just wondered whether you could share whether Swiss Re has any plans to further grow its relative capital part on its division in 2027?

Yes. Look, I showed a little bit earlier that alternative capital is an important part of the capital alternatives that insurance companies in the public sector have. We've been a very strong player in this field for over 25 years. We were one of the pioneers in the ILS space. We continue to be offering those services to our clients as well, and we expect to continue to be a meaningful participant in that market.

Okay. Next question, at the back, please.

[ Philip Thomas ] for [indiscernible]. You mentioned that most of those wildfires are caused by human intervention. That could be arson, it could be negligence, cigarette butts thrown away. Has any thought been given on how to survey the further surveillance could be drones or whatever patrolling just to catch people who are responsible, prosecute them, create some examples and hence, improve human behavior?

So with human behavior, we don't mean malicious behavior necessarily. Of course, there's also malicious behavior there as well, but it's not -- sometimes it's not intentional that lightning -- a fire is not extinguished after you grilled your steak. So there's that, too. But clearly, it's a concern for us in terms of how we get to the source of the fire, the wildfire because it's not always clear and how to monitor it adequately is a challenge for us. So we continue to think through how we can better identify the sources of these wildfires so that we can add to the prevention measures.

I'll add one element to this. There is a preventative component also when you think about either brush management around certain areas like a transformer that has the possibility of issuing a spark as well as transformer maintenance, for example, in the context of utilities, where some of that actually then could prevent the outbreak of a fire in the first place. So the creation of the awareness about what causes these wildfires, which are called a natural catastrophe, but really are triggered by human activity mostly is an important element around this.

So I think we'll take one more question here, [ Martin ], and then we can look if there's anything online.

[ Martin Aslan ] from Insurance. I wanted to ask about the litigation environment. You said it's bad. Where is it the worst? So which sector in the U.S. are you seeing the most worrying trends? I mean we've heard about AI litigation. We've heard about social media litigation. Where do you see it rising the fastest? And Swiss Re previously warned about this litigation environment also spreading to Europe. Do you see any signs of this happening?

I'll take the first part, and then you can cover the spreading. So where is it the worst? It's in the U.S., right? The liability in the U.S. is the topic that we're talking about here. It started in large commercial. And so the idea behind this is you have a certain event that's happening and the plaintiff bar going about the deepest pocket, which are the insurance policies of these large commercial companies. There's an element of societal sentiment in there as well, jury behavior and so on, but that was the trigger, and it is certainly spreading from there on as well. It's going smaller. It's going across different classes. You have the traditional ones like commercial motor or trucking that are there, but it's also umbrella policies at a personal level. And so it's the liability in the U.S. given the legal system environment and what's happening there that's triggering these payouts, which are not connected with the original underwriting assumptions and the causation in many cases of the event that's triggering that loss. It's across everything.

On the second question, yes, it is spreading outside the United States. We see certain developments in the U.K., also litigation funds being established there and more aggressive claims behavior being displayed. It's still -- we observe this quite carefully so that our business that we do with our European cedents is well considered when it comes to this U.S. liability or liability trends as such. But yes, it is spreading elsewhere geographically.

Okay. But I think we'll move on to our guests online. I see that [ Blake ] has a question. [ Blake ], please go ahead.

This is [ Blake Evans-Pritchard ]. I work for Re in Asia. So I wonder if I could ask a quick APAC-focused question related to capital deployment. I'm just interested with all this capital -- abundant capital sloshing around and reinsurances increasingly having to think about where they want to deploy this capital. I'm just wondering if Asian cedents are used in the current environment to find protection for risks that were previously difficult to insure or retain. Is there any APAC flavor you can give on this?

Yes. Look, fundamentally, as a starting point, reinsurance is a global model, and you need the global diversification in order to provide the support to the more regional or local societies and companies and governments -- so it's always a global competition or a global capital allocation question. It is a competitive environment. And so from that perspective, there's different views of risk. Different reinsurers will want to deploy their capital in different regions, different lines of business. And to your question of are there risks that are being covered today that weren't before, there is a little bit of a market dynamic certainly here throughout various market conditions. Sometimes wordings are a little bit broader, a little bit more narrow, same thing with structures. What you usually see are the headline prices, right? But generally speaking, I would say there's a reasonable amount of discipline in the reinsurance market around the wordings, and we would expect that to continue.

Okay. Thank you. And then we can go on to [ Maximilian Folz ], please.

It's part one. Can you say what impact the negotiations in Monte Carlo will have on reinsurance prices in Europe and in Germany, in particular? And do you expect the situation in Baden-Baden to change again?