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Original Risk: A Society for Change Agents

Market environment pushes reinsurers to innovate, embrace ILS: JLT Re


The soft reinsurance market environment, that remained favourable to buyers at the January 1st 2017 renewal season, has encouraged reinsurers to innovate structures and products from both the traditional and alternative space, says reinsurance broker JLT Re.

In the ongoing soft reinsurance marketplace reinsurers continue the race to position their firms for long-term survival. And while traditional areas of risk have been relatively stagnant, reinsurance brokerage JLT Re says improved analytics and modelling have enabled reinsurers to innovate, and take on a broader set of risks.

“The increased sophistication allows reinsurers to look at risk in a more holistic way. It can give them a good feel of the risk/reward relationship between different types of transactions and place a well-reasoned bet that is quantifiable and consistent with their ERM guidelines,” says Ed Hochberg, Chief Executive Officer (CEO), North America, JLT Re.

Mortgage and flood are key areas Hochberg names as being further opened by advanced analytics and modeling, with reinsurers using sophisticated risk assessment tools to take a more holistic approach to such exposures.

Citing a report from international rating agency A.M. Best, the reinsurance broker notes that one of the ways reinsurers have been adapting to the evolving market landscape is by increasingly viewing the entry and presence of alternative reinsurance features and capacity as an opportunity, rather than a threat.

“This is just as well,” says JLT Re, stating that it estimates alternative capital to have reached $70 billion, which is roughly 21% of overall, dedicated reinsurance industry capital.

Figures for the proportion of dedicated reinsurance capital that comes from the capital markets vary, ranging from the $70 billion noted here, to $75 billion, and even as much as $80 billion.

But while the number varies one thing remains clear, alternative capital continues to expand and claim an increasing share of total, dedicated reinsurance capital. And traditional players are increasingly adapting their business models and reinsurance buying habits to incorporate the wealth of efficient, diversifying ILS structures and capital to optimise their portfolios and position themselves for long-term survival.

An innovative and open-minded approach to the soft market landscape is important for reinsurers in their fight to remain relevant in a highly competitive marketplace.

And while it’s important that companies continue to innovate and utilise the capital markets alongside more traditional reinsurance market tools, Stuart Beatty, CEO of Asia Pacific at JLT Re says the reinsurance market will always remain relevant, due to changing regulatory environments.

“Regulators are clearly going to become more and more focused on conservative positions from a capital adequacy perspective for insurance carriers. It will always be relevant, whether it is in the form of traditional reinsurance products or alternative products in the capital markets.

“Wherever you are in the world, regulators are critical to ensuring solvency is in place for the insurance and banking community. That is their primary function, and they all have different interpretations of capital adequacy,” said Beatty.

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