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Match unaddressed risks with excess reinsurance capacity: Aon


The reinsurance industry is awash with capital & capacity, both traditional and alternative, but instead of letting the pressure keep building up, reinsurance broker Aon Benfield says that it can be put to good use by being matched with risks that are currently unaddressed.

It’s a theme that was a hot topic at the 2015 Monte Carlo Reinsurance Rendez-vous recently, when the market meets to discuss its prospects for the future renewals. Among all the doom and gloom on pricing, pressure and competition, there were a few rays of light focused on putting all this capital to work.

A lack of innovation was also cited as a key reason that the reinsurance market has so far failed to put its excess capacity to good use, evidenced by the continued return of capital by traditional players and the search for M&A as a way out.

Malcolm Steingold, CEO of Aon Benfield for Asia Pacific, discussed this and highlighted some of the more positive opportunities that the reinsurance market has to put excess capital to work.

“Over the past decade, the market has become more complex with increased regulatory, rating agency and shareholder pressures. This has resulted in some re/insurers adopting a “zero failure” mindset, which may seem to offer a degree of protection, but does in fact stifle innovation and growth,” Steingold explained.

It’s not a lack of ability to innovate, rather it is perhaps that the focus of reinsurers has been on competition, pricing and the threat they perceive from alternative capital and ILS, rather than on the new opportunities.

Steingold continued; “Strategically, the industry has the ability to meet client needs, innovate and create an entrepreneurial environment that will bode well for business to rise to address the challenges it is facing.”

“There is plenty of capital in our industry today, but there is also plenty of risk that is not currently being addressed by our industry,” he said.

Steingold highlighted the need for advanced analytics and data tools to enable re/insurance products to be reinvented for the modern age, which would result in greater uptake and a need for more capacity, as one opportunity.

Another is the emerging risks arena, of cyber risks, supply chains, business interruption and intellectual property and other perhaps less tangible exposures.

Finally, and perhaps the biggest opportunity for the reinsurers and ILS players due to the peak nature of so many of these exposures, the re-privatisation of risks from public sector and governments, back to private sector insurers, reinsurers and capital markets players, presents a major opportunity to absorb capacity.

Think earthquake, wind, flood, terrorism and perhaps less well known risks such as U.S. mortgage credit, according to Aon Benfield. All of these present an opportunity for reinsurers to gain incremental premiums, putting excess capacity to work.

In a speech at the 14th Biennial Hazards Conference in Australia, hosted by Aon Benfield, Steingold highlighted these organic growth opportunities for reinsurers.

But in order to take advantage of them, reinsurers and ILS players must keep pace. “By developing the skills, capabilities and talent to address these risks, re/insurers will grant themselves new, long-term revenue streams,” Steingold explained.

With reinsurance capital remaining at all time highs and capital being returned rather than put to use for organic growth, while at the same time alternative capital and ILS investors remain poised to deploy more capital when opportunities allow, aiming for new opportunities to secure risk premiums has to be the most sustainable growth strategy around.

Rather than fighting over existing pieces of the market, where perhaps risks are better left to those with the most efficiency and lowest return requirements, traditional reinsurers should put their expertise to work addressing these real and tangible organic growth opportunities.

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