Global catastrophe losses in the past two years and recent disasters in Australia highlight the need to better understand and deal with volatility impacts, Swiss Re executive Trent Thomson says.

Mr Thomson recently returned to Sydney as Australia and New Zealand Head of Property and Casualty Client Markets after five years with Swiss Re in the US, where he specialised in casualty.

The Australian market remains highly competitive for insurers, he says.

Rates are being increased in areas such as commercial property and financial lines as companies remediate portfolios, and there is a focus on reducing expenses and efficiently deploying capital as the risk landscape changes.

“Just that frequency and severity of natural catastrophes… worldwide and also in Australia has certainly focused people’s attention on the volatility of earnings, how to manage that, and how to better understand risk,” he told insuranceNEWS.com.au.

Mr Thomson says the Townsville floods highlight the insurance gap, while recent research indicates that close to 90% of SMEs in Australia have no business interruption cover.

“As an industry, we need to continue to drive that gap to become narrower over the medium term.

“It just highlights how vulnerable that [SME] sector is to unexpected loss events and how it can have a material impact on the Australian economy and on a lot of individuals and families’ lives.”

Mr Thomson says large global catastrophe losses over the past two years are having some effect on reinsurance and the insurance-linked securities (ILS) market.

“Late last year we saw a bit of a pullback in the amount of readily available alternative capital. That speaks to the fact there were some very large losses and the ILS market is still reflecting on those losses and being a little bit more careful in terms of where they deploy their capacity.”

The major reinsurance companies are also taking stock.

“I think what you will see moving forward is reinsurers certainly looking to have a balanced program and making sure their risk-adjusted pricing is more in line with their longer-term return targets.”