The last decade has been pivotal for the global reinsurance industry, resulting in a complete reshaping of it as reinsurers take different approaches to adapting to the new marketplace reality. However opportunities exist, such as supporting global sustainable development goals.
“The last decade has been pivotal for the industry. There have been sweeping changes across social, technological, environmental, economic and political factors which will continue to influence the way reinsurers adapt to thrive,” according to PwC Bermuda Territory leader and Insurance leader, Arthur Wightman.
Of course one of the major changes that has affected reinsurers and the global reinsurance industry is the convergence with capital markets and the rapid growth of institutional investor capital through insurance-linked securities (ILS).
This, alongside the increasing fungibility and pace of capital movements around the world and its financial markets, has had a disruptive effect on reinsurers, but also positive, providing efficient capacity which can be put to use in supporting global goals.
But while the market is moving so fast, with continuing changes and accelerating rates of technology, social and economic development around the world, life for reinsurers has not got easier yet, and there are many routes that could be taken as they try to adapt to a new, reshaped reinsurance reality.
Wightman continued; “The challenge for reinsurers is that there is no single adaptation. While these factors impact reinsurers globally, they have different levels of impact within each region and country. In addition, the actions that reinsurers choose to take will depend not only on their national or regional markets, but also on their strategic intent, core capabilities, availability of talent, capital and organizational culture.”
Kevin Ahern, Managing Director and Analytical Manager, Standard & Poor’s Ratings Services, agreed; “The reinsurance industry is undergoing a structural transformation due to a number of factors that will have far-reaching implications.”
Capital has driven much of this change and this has also led to incumbents working to adapt their business and capital models to be more suited to the reshaped reinsurance environment.
“Along with the continued inroads being made by alternative capital, property-casualty insurers and foreign investors from both within and outside the sector are taking a fresh look at the industry,” continued Ahern.
But new strategies and the search for efficiency, both in terms of capital and business operations, have the exacerbating effect of accelerating the pace of change and the amount of competition that reinsurers face. While this reshaping continues reinsurers need to be nimble and innovative to spot and seize opportunities to prosper, despite the market challenges.
Ahern explained; “The different models being employed, such as the Berkshire model, and the different financial objectives, such as those focused on regulatory capital levels, are increasing the industry’s diversification while heating up competition.”
But there are clear opportunities, some being driven by the interest of third-party investors in accessing the low-correlated returns of the insurance and reinsurance market, others being driven by factors such as global growth, development, the climate issue and sustainability.
Despite the challenges faced by reinsurers, the macros investment environment, the pressure and competition from ILS and new, more efficient business models, there are still chances to be forward thinking and to embrace globally important issues and trends to demonstrate the important role that reinsurers (and ILS or third-party capital) can play.
Wightman of PwC explained; “Notwithstanding this complexity, at a macro level reinsurers have the opportunity to positively influence global sustainable development goals. Whether that is through climate action, economic growth, supporting sustainable cities or narrowing the protection gap, reinsurers will make a difference if they organise themselves to respond to the significant shifts facing the world.”
These are huge issues for the globe, which are increasingly coming into focus in this year of climate and Cop 21 related talks featuring the United Nations and other organisations.
It is vital that the insurance and reinsurance industry, as well as insurance-linked securities (ILS) players, make their voices heard and it clear how they can feed into these important discussions. Not only do they provide a clear opportunity to the re/insurance sector, they are vital issues for all of us.
By working in tandem with other global markets and players, reinsurance can support the drive towards sustainable development goals.
By providing disaster risk capital, helping to transfer risk from resilience projects, insuring and reinsuring the infrastructure required to reduce or mitigate risks, as well as by ensuring the rest of the world learns from re/insurers understanding of climate and risk and the potential impacts on people and investments.