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Swiss Re Girds for Future Shocks

Swiss Re (SREN:VX), founded 150 years ago in Zurich to help insurers cover expenses from unusually costly disasters, is now one of the largest reinsurers in the world. Eric Smith, chief executive officer of its Americas division, talks about the challenges and opportunities ahead.

Why is climate change such an important issue for reinsurers?

When something really bad happens, like Sept. 11 or Hurricane Katrina, we serve as the shock absorbers. We take the big claims. We help the insurance companies and governments survive those. As the climate changes, storms become more frequent and more intense. And that makes our business really tough.

What are you doing to prepare?

No. 1 is, we take a very public posture around climate change. We declared very early on that we would become a carbon-neutral enterprise.

What does that mean?

It’s how we build new buildings. It’s how we manage existing buildings. We are extremely energy-efficient from a corporate perspective. We also encourage our employees to lead energy-wise lives. We give financial incentives to our employees to upgrade to efficient appliances. In my case this year, I decided to go to an electric car, and the company provided an incentive for me to do that. I drive a Tesla (TSLA) now. The sedan. It’s awesome, by the way. Everybody’s going to have one in 10 years.

Are there opportunities that a warming planet creates for Swiss Re?

Sure, because there will be different types of risk that will emerge. We see the risk to governments getting hit by severe events and what that will do to their infrastructure, and we come up with creative ways that they can afford to have coverage. A country like Mexico is a good example. They’re more exposed than most countries because they’ve got an ocean on both sides, and both produce hurricanes. They have very innovative reinsurance coverage in place with us. Whether they get hit by an earthquake or a hurricane, we help to provide the initial funds to put their infrastructure back in place.

What else is front-of-mind for you?

There’s a thing called TRIA [the Terrorism Risk Insurance Act] that we’re working to get renewed prior to Jan. 1. The way the model works is that if there’s ever anything really big that happens, then the federal government has to step in and be the backstop, and then there’s a mechanism in place for the 10 years after such an event for the government to get all the money back, plus some. We just need that backstop in place. If we don’t get that by Jan. 1, it’s going to cause disruption. As businesses start to renew after Jan. 1, they’re going to be notified that terrorism is excluded, and that’s going to be a mess.

What are the odds of getting the legislation through?

Quite good. There’s a lot that happens that we don’t read about. Are we at a very political time? Absolutely. But I think, fundamentally, business still is going to get done.

Buhayar is a reporter for Bloomberg News in New York.

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