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Home / Business / Q and A with CEO

Reinsurers key to growth of renewables

By Li Xiang | China Daily | Updated: 2018-07-13 09:26
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A man passes the Swiss Re building in the City of London financial district. [Photo/Agencies]

Swiss Re head says industry champions sustainability and can help societies like China to become more resilient

When Swiss Re AG's CEO Christian Mumenthaler first visited China in 2006, he saw an emerging economy with a multi-millennial culture and history.

During the visit, the chief of the Swiss reinsurance giant made good use of a conference break on a weekend and journeyed to the Great Wall. He picked a less touristy route and managed to have a breathtaking view of the massive wall.

"I could see the wall stretch seemingly endlessly in both directions," he said in a recent interview with China Daily. "No hurdle seems to have been too high for the builders."

The spectacular growth of the Chinese insurance market reminds him of those feelings he experienced on the Great Wall.

"Just a decade ago, China did not rank among Swiss Re's 10 largest markets. Now, it is the fourth-biggest market for us," Mumenthaler said.

Asia as a whole accounts for about a quarter of the Zurichbased reinsurer's revenues. Mumenthaler sees a huge protection gap in Asia and in China, which could generate greater demand for reinsurance products and services.

The encouraging sign is that China's shift toward a more sustainable and high-quality growth will mean greater emphasis on protection against risks. In particular, it is important to cover risks that could jeopardize social development and people's quality of life, Mumenthaler said.

During the interview, the Swiss reinsurance chief shared his views on China's economic transition, the liberalization of the Chinese insurance sector and Swiss Re's roles in areas such as renewable energy, agriculture, and protection against natural catastrophes in the country.

What are the most positive trend and the biggest risk in the global economy this year, and what does it mean for the outlook of the reinsurance industry?

We are pleased that the global economy has entered a growth phase. The inflation so long-awaited by many is, however, challenging for insurers if inflation hikes are very sudden. Of course, we haven't reached that point yet. But the phase of highly expansionary monetary policy-whether traditional or non-traditional-is over, and we expect that yield curves will move upward and get steeper.

One of the biggest risks is still the protection gaps we see around the world-that is, the gap between what's insured and what's not. In 2017, the global protection gap for natural catastrophe risk alone amounted to around $193 billion. This represents too many people that will not have the financial support necessary to rebuild their lives when natural catastrophes strike in the future. It also represents a threat to entire economies. At Swiss Re, we're determined to tackle this gap.

How do you see China's goal of pursuing higher-quality growth and what roles can reinsurance companies play in the process?

China has grown by an average of almost 10 percent per annum since the adoption of the reform and opening-up policy almost four decades ago. The results are spectacular: from the rise of China to the second-largest economy in the world to millions of people coming out of poverty.

Yet, some of the key challenges facing China today, including an ageing society and rising concerns about environmental degradation, warrant increasing emphasis on the quality instead of the quantity of growth-here, the underlying principle is that sustainable growth lifts people's quality of life.

That same principle forms the foundation of the reinsurance industry, which champions sustainability and helps societies to become more resilient. The focus on higher-quality growth inevitably puts the spotlight on different risks that could jeopardize the longer-term future of society and people's quality of life, such as major natural catastrophes or epidemics.

These different risks need to be managed vigorously. Reinsurance is a core part of the risk-taking and risk management process that is central to the success of China's transition to higher-quality growth.

It supports and facilitates green trade and commerce, promotes stability and smoothes fiscal volatility. For example, our industry can play a key role in the growth of the renewables sector in China by covering the risks involved in various phases of project life cycles, from planning to construction to operation.

What should China do to develop a safe and efficient insurance and reinsurance industry?

China is now the world's second-largest insurance market and it still enjoys very strong annual premium growth. Looking ahead, two important factors will help to safeguard well-functioning insurance markets.

First, prudential supervision, where the C-ROSS solvency framework in China will help detect risk and change insurers' behavior. At the same time, insurance companies must strengthen their own enterprise risk management and risk assessment capabilities to integrate financial risks into their risk and capital frameworks.

In addition, the role of the insurance industry in underwriting risk and investing with a long-term horizon cannot be underemphasized. A financial market system where long-term investors are empowered to fund the real economy and access private capital markets is less prone to "pro-cyclicality". A sound financial market system contributes greatly to sustainable economic growth, economic resilience and improving living standards.

How has Swiss Re benefited from China's integration into the global economy since its reform and opening-up 40 years ago?

Forty years ago, insurance hardly existed in the Chinese mainland. Today, China makes up more than 10 percent of global insurance premiums. Just a decade ago, China did not rank among Swiss Re's 10 largest markets. Now, it is the fourth-biggest market for us.

Alongside China's reform and opening up, Swiss Re has set up representative offices in Beijing and Shanghai in 1995 and 1996 respectively, and opened our Beijing branch to conduct life and non-life business throughout the country in 2003.

In addition, with China's efforts to strengthen public-private partnerships or PPPs to better manage various risks facing society, Swiss Re is able to participate in the Beijing Municipal Agricultural Insurance Pool, as well as the Heilongjiang Weather-index Agricultural Nat Cat Insurance program. Through these partnerships, we use expertise to offer customized solutions that fit local practices.

How do you expect China to further open its insurance and reinsurance sectors to foreign companies? In what areas do you think Swiss Re has a competitive edge over local players?

There is no doubt that an open and global reinsurance marketplace will create the most value for Chinese consumers. Foreign companies, including Swiss Re, can share overseas best practices so China can learn from both the lessons and mistakes of other countries-and so that insurance companies in China can offer products that best suit the needs of Chinese consumers.

Swiss Re has 154 years of experience in insuring and paying claims in exposed areas all over the world. The risk knowledge we have built up over time, as well as our client access and capital strength is what sets us apart. We collaborate with our partners and clients in China to customize our global knowledge to local practices, especially for complex risks. For instance, to support new energy development in China, we have expertise in providing bundled solutions comprising cover for both construction and operational risks.

What is the most unforgettable experience you have had in China?

My first visit to China was in 2006 for a conference. I used the weekend before to go to a less touristy part of the Great Wall. It was an overwhelming experience to walk on this massive wall, and as I walked further, I was soon all alone. I could see the wall stretch seemingly endlessly in both directions, up and down hills and mountains, and no hurdle seems to have been too high for the builders. It told me a lot about the multi-millennial Chinese culture.

How do you see the future of the reinsurance industry? How is technology changing Swiss Re's business?

Digital technology will have a big impact on primary insurance in the future. We see four areas in which digital innovation will take place: in acquiring new clients, in underwriting and risk selection, around reducing the costs of the value chain, and around creating new services for customers.

The biggest value creation will probably be in reducing cost of the value chain and creating new services. As reinsurers, we should focus on digital innovations that are relevant for the primary insurance industry and where we can help our clients to develop themselves in these areas.

Let me share an example: Magnum, our automated underwriting tool for Life & Health clients, collects data that can help us and our clients in the ongoing optimization of our underwriting services. Magnum processes 10 million insurance applications per year, of which 80 percent are accepted immediately.

Magnum is mobile-it runs on around 1.6 million devices, especially in China. Solutions like these make our clients more successful while supporting Swiss Re's growth.

Overall, I see digitization as offering more opportunities than risks for Swiss Re.

How would you describe your management style? What has helped you form such a style?

I'm passionate about getting the best people for each job. I like to give them freedom and flexibility so they can be effective. I have a relatively informal style and I value two-way feedback, as it helps people grow. Of course, there are several leaders outside Swiss Re who inspire me. They are generally down-to-earth and always pushing forward-gently, but surely.

How do you envision Swiss Re's future under your leadership?

Today, Swiss Re is mostly known and seen as a knowledgeable reinsurer. In reality, we are a 154-year-old risk knowledge company that invests in risk pools. Keeping this access to risk is critical for our future.

Consequently, I see my job as building on this risk knowledge and expanding it, while opening up more access to risk through our insurance, corporate clients and partners. Together, we should strive to constantly improve the whole value chain with the new technologies and to provide better products and services to customers. This, in turn, should help close the protection gap I referred to earlier.

What are your hobbies? How do you spend your leisure time?

I have two young kids so it's extremely important that I can spend time with my family. That's how I unwind and it gives me a good balance between work and private life. I am also passionate about history and I love to travel around the world.

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