One of the most encouraging things to come out of the second-quarter results round so far, is the emergence of some clear messaging from reinsurance industry senior executives that opportunities for growth are available, should you be willing to identify and embrace them.
In quarterly results rounds over the last few years the sentiment expounded by reinsurance company CEO’s has gone through a range of themes.
Negativity; as pricing started to wane and alternative capital and ILS began to grow its share. Nonchalance; “it can’t hurt us, we’re too big/experienced/expert”. Blame; “it’s all those darn investors faults.” Heads in the sand; “it’s all fine, but just don’t look too closely at the numbers.” To realisation; “we’re in a new normal.” And now, finally, a focus on the clear opportunities for growing insurance and reinsurance businesses in this world.
Swiss Re CEO Michel M. Liès did a good job this morning of getting the more positive message home.
“Even though market conditions are difficult, it is important to not lose sight of the many opportunities we have for our industry,” Liès explained in Swiss Re’s Q2 results this morning
The natural catastrophe and weather insurance, or reinsurance, protection gap is one area that Swiss Re has been shifting its focus to over recent months. The international consensus surrounding this issue has been growing, helped by the work of the United Nations and the opportunity to be a leader in this space is becoming clear for large reinsurers, such as Swiss Re.
“Addressing the current high levels of underinsurance presents an important long-term chance for re/insurers to grow. This is true for natural catastrophe protection, especially in emerging economies,” Liès commented.
And the protection gap is evident in other lines of business as well, with capacity required, from the lowest level for those on the lowest incomes, right the way through the chain up to reinsurance capacity requirements to help to foster development of functioning, new local insurance markets.
He continued; “It is also true for the large life and health protection gaps, which can leave families and individuals exposed to the financial shocks of a sudden disability, loss of a family member or need for long-term care. In this respect, insurance and Swiss Re can play an important and vital role.”
Liès is not the only senior exec at a reinsurance firm to begin to focus on the opportunities available for growth, as a theme it is building and we’d expect there to be a significant change of message at the upcoming Monte Carlo Reinsurance Rendez-vous 2015, compared to recent years.
Over the last few years this event has been full of commentary about the woes of declining reinsurance rates and the impact of insurance-linked securities (ILS) and alternative capital, with many speakers offering little in the way of a positive outlook.
The reinsurance industry seems to have got passed its malaise, now able to look to the future opportunities with a fresh set of eyes and some new ideas.
The promise of new classes of risk, such as cyber, attempts to persuade corporations to better protect themselves against disaster and weather induced business interruption, the efforts to narrow the protection gap, as well as the development of new business models, all seem to be contributing towards a brighter outlook.
Some of the reinsurance results show that opportunity is there for those willing to grab it.
French reinsurance SCOR yesterday reported a huge increase in premiums written, despite the softening market environment. Ignoring the clear foreign exchange contribution, this is positive for the market, that firm’s are able to seek out growth despite the challenges.
Of course, we don’t know who has lost business as a result, or whether SCOR has been picking up business that other companies have chosen not to renew. But, as part of its plan to diversify its risks and deepen its franchise, as Kessler explained, SCOR is clearly having some success.
RenaissanceRe provided another example of grabbing new opportunities, stemming its decline in catastrophe reinsurance underwriting, as it clearly benefited from the new demand coming out of markets such as Florida.
So it’s not all bad, anymore.
Swiss Re’s results are themselves impressive over the half-year, although Q2 looks less positive. The reinsurer has been hit by man-made losses during the second-quarter, but also boosted its results due to benign catastrophes and a few percent of prior year reserves. This actually takes the technical combined ratio for P&C to around 103%, reflecting that reinsurers are fine while losses remain low, but perhaps becoming more exposed to smaller losses, due to market factors.
Having reported an increase in net income, but helped significantly by lower catastrophe losses again. But the reinsurer is also seeing success in its Corporate Solutions unit, offering complex and tailored risk and re/insurance solutions to clients, an area where the reinsurers with scale and deep expertise can excel.
In the reinsurance market, in recent years, an ability to find your niches and then excel at them has been key. The larger reinsurers are often better able to do this, while also maintaining the rest of their businesses, helping to make them more immune to soft market factors than smaller to mid-sized firms.
We can perhaps hope for a less negative Monte Carlo this year, with senior reinsurance execs presenting clear ideas for future growth and expansion, to take advantage of the opportunities that the world’s growing economy presents.
Of course not all reinsurance company CEO’s have been so negative, some have been positive on the impact of lower rates and their ability to navigate a perhaps “softer-forever” market. Others have embraced new forms of capital and business models in order to add revenue, to compensate for that eroded by lower pricing.
Swiss Re also chose to highlight some of its more recent initiatives, such as participating as lead reinsurer in the Florida Hurricane Catastrophe Fund’s reinsurance placement and acting as a reinsurance partner to the African Risk Capacity (ARC) pool. As well as launching a Corporate Solutions unit in China, to capitalise on that economy’s growth.
Swiss Re’s report states; “We take confidence from the fact that demand for reinsurance services is vast and growing. Ever greater shares of the world’s population and wealth are at risk from disasters and catastrophes. The inexorable trend of longer lives occurs in the context of a growing risk of pandemic illness.”
And; “One way to expand the reach of re/insurance is to think broadly about who our potential clients are.”
That’s a really key message. The reinsurance industry needs a new customer-led, product design and innovation driven, approach to finding the next big opportunity to put is risk capital to work.
Swiss Re’s sentiment in the report is positive and focused on clear opportunities for growth, which can help reinsurers such as itself to offset the decline caused by a softened reinsurance market.
There may also currently be a case for being mature enough, as a business, to recognise that there are areas of the reinsurance market where your capacity is not required or best made use of.
Continuing to deploy capacity into lines and markets where ILS has taken a large share, or where more efficient competitors are able to undercut you, risks taking on exposure at rates your balance-sheet cannot support.
At some point in the future, some reinsurers are going to have to come to terms with the fact that their business models may not be best suited for certain risks anymore, meaning they need to launch new vehicles to remain in those markets or perhaps even step away completely.
But having the maturity to realise this and to recognise that at the same time there are clear opportunities available, which can offset any shift in business mix, is something that businesses have to learn.
No matter how challenging the market is. No matter how stiff the competition from your peers. No matter how hard it is to compete with efficient new entrants. No matter how tempting it is to be reactive and negative. It remains vital that reinsurers embrace the job they have to do, providing the risk transfer capacity to support the economies of this world.
We’re perhaps seeing some evidence that the last few years have taught reinsurers a lesson. The next few years should be very interesting as a result. We look forward to hearing reinsurers ideas and opportunities for the future at Monte Carlo this year.
View all of our Artemis Live video interviews and subscribe to our podcast.
All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.
Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.