«The financial sector is solid and remains a driving force for Switzerland.»


Sergio Ermotti, Chairman of the Board of Directors of Swiss Re, gives an all-round view of the present and future of the economy, on a local and global scale

«The financial sector is solid and remains a driving force for Switzerland.»
«The financial sector is strong and remains a driving force for Switzerland.»

«The financial sector is solid and remains a driving force for Switzerland.»

«The financial sector is strong and remains a driving force for Switzerland.»

How would you assess this first time as chairman of the Swiss Re Board of Directors?

«I was appointed Chairman last April, but had already been a member of Swiss Re’s Board of Directors for a year. During those twelve months I had the opportunity to implement an integration process, to get to know the Group, the management, and my colleagues on the Board, and to work closely with outgoing Chairman Walter Kielholz. I was well prepared and I have to say that the transition to the presidency of Swiss Re was very good. I can now focus on the implementation of our strategy and the future of the Group.

What are the special features of the operations and strategy of a re-insurance group?

«Firstly, it must be made clear that reinsurance is different from primary insurance. Reinsurers normally work on risks that can be very high, they have to live with the variability of financial results, which forms part of the business model. For example, in the last couple of years, there have been many natural disasters and there has been a pandemic, events that for a reinsurer meant acting as a shock absorber for the losses of its clients and the economic system. Some of these risks are factored into premium calculation models. These extraordinary events can have a negative impact on the income statement for a single year. It is important for our shareholders, however, to achieve a satisfactory return on capital in the medium term. Developing a strategy in this business means finding a balance between these various aspects, knowing that there will always be some unexpected event. It is also necessary to try to understand which risks can still be reinsured in the future, and under what conditions, and which cannot. For the latter, it will be necessary to find alternative solutions that can pass, for example, through collaboration between the public and private sectors».

Where do you see the world economic situation and that of Switzerland?

« At the international level, after the economic contraction due to the pandemic, a marked recovery has begun, especially in the United States, but in some aspects also in Europe. At one point the forecast was negative, also because the pandemic came at a time when, after years of good growth, the international economy was already showing clear signs of slowing down. The wave of the virus did quite a bit of damage, but now the bounce back is looking more robust. Switzerland has been more successful in managing the economic impact of the coronavirus, it has managed more than others to limit the damage; the rebound for the Swiss economy this year will be very good, however, it will take a little longer to return to the same GDP levels as in 2019, this will likely happen in the first part of next year.»

How is the situation now for the financial sector, both in Switzerland and more generally?

«Within the financial sector, insurance is increasing more than banks, but the financial sector as a whole remains a driver of the Swiss economy. On a global level, finance has been solid during this pandemic crisis; unlike the two-year financial crisis in 2007-08, which mainly affected the banking sector, this time finance was part of the solution, not the problem. On the whole, finance managed its risks well and helped clients and their economies deal with the crisis.»

There is more talk of possible new mergers, will the topic remain on the industry agenda?

«The topic of mergers for banks and finance is emerging more and more prominently. Of course, mergers and acquisitions cannot just be a matter of cost savings, they must also have a strategic value that allows all synergies to be optimized. In many cases, there is not enough diversification of activities, or not enough critical mass to support the investments needed to keep up on the regulatory front, as well as those for the new technologies needed to remain competitive. We’ve already had a lot of consolidation in Switzerland, but I expect that there will be more mergers here to some degree as well».

Where do you stand on the relationship between Switzerland and the European Union after the Federal Council’s most recent rejection of the framework agreement?

«Switzerland needs to have a good relationship with the EU, we need to maintain and adapt the Bilaterals with the EU. Having said that, I think the Federal Council was right to stop, if somewhat delayed, the negotiations on the framework agreement, which had difficulty in obtaining a solid majority. I think that further rounds of negotiations, with possible concessions from both sides, without obtaining the support of Parliament and the People, would have worsened the internal political climate and relations with the EU in a more important way. Now we have to remain cool and carefully evaluate possible retaliation reactions from the EU. I believe that Brussels also has an interest in not going to extreme measures. But as Switzerland we have to prepare for all scenarios, i.e. we must prepare not only for plan B but also for plan C, D, etc. We have to think about alternatives on how to remain globally competitive in the future as well».

Where do you stand on the dynamics of the franc and the Swiss National Bank’s policy?

«It must be said that Switzerland has historically been accustomed to having a strong exchange rate and businesses, and the overall economy, have always had the ability to adapt over time. In addition, the strong franc also has certain advantages, including that of a cheaper import. That said, it is also understandable that the SNB tried to rein in the franc at the time to avoid excessive problems for Swiss exports, through purchases of foreign currencies and with the threshold of 1.20 with the euro. However, the exit from this threshold in 2015 was in my opinion not well managed. We are now in a situation where certain elements weigh more heavily. Let’s think about negative rates, which in the long run create problems not only for banks, but also for savings more generally; and lets think about the balance sheet of the SNB, which is now very large and presents greater risks than a few years ago. On the franc and SNB policy a new reflection is needed even if we must recognize that at this time it is not easy for the SNB to distance itself too much from the approach of the Federal Reserve and the European Central Bank».

There are often different opinions in Ticino on the economic picture of the Canton. What do you see as the outlook for the Ticino economy?

«The Ticino economy is well diversified, the anti-pandemic measures have been well managed, at the level of employment the canton overall is in a good position. The virus has damaged some sectors, but others have held up and others have made progress. In the future AlpTransit and the new Monte Ceneri tunnel will have an important impact, they will improve North-South relations and access to Italy, even if much remains to be done to the south of Lugano. The fact that Ticino is now better connected to the Great Zurich Area is positive. Ticino will be even more interesting as a base for developing new activities. That which concerns me is the structural migration of young people from Ticino: whether they go to study or gain work experience elsewhere is fine, but they should then be able to return at the very least in part. We must aim to further develop centers of excellence in terms of university facilities, digitalization, industry and services, and finance, which in the Canton maintains an important role despite the changes of recent years».

You are a member of Investindustrial’s SPAC investment company and a Board member of Corriere del Ticino. How do you characterize these other responsibilities you have?

«When I left the position of CEO of UBS, I had said that I would enter a new phase of my professional life and that is what is happening. The job as Chairman of the Board of Swiss Re is full-time, but it allows me a little more flexibility in my time management. There is also room for other commitments and new experiences. One is the SPAC with Investindustrial, where the professional and personal knowledge I have accumulated over the years can be useful. And another, which is different, is as a member of the Board of Directors of Corriere del Ticino. In this case I gladly accepted to give my availability to an important reality of the fabric where I was born and raised. The world of the media has certainly changed a great deal in the last few decades, also through technology and the various ways in which the public views news. The change continues. There are also some challenges and uncertainties in the sector, of course, but I believe there are also many opportunities to be seized».

Reinsurances and the figures of the Swiss group

The risks taken on by private or corporate clients (e.g. for epidemics, storms, floods, earthquakes, diseases, life insurance policies) can be too great for insurance companies, regardless of their financial strength. In fact, these risks can run into the hundreds of millions or even billions. So small, medium and large insurance groups in turn buy insurance from a reinsurer. This is the basic characteristic of the reinsurance business. Swiss Re is the global leader in the business; it posted net premiums of $40.7 billion in 2020. After last year’s losses caused by the pandemic, the Zurich-based group returned to profit in the first three months of 2021, with quarterly net income of $333 million (300 million francs at current exchange rates).

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