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Original Risk: A Society for Change Agents

Reinsurance executives at Baden-Baden discuss changing market


Executives from the reinsurance industry discussed the changing market and the future impact of recent trends, concluding that the market is facing unavoidable trend but that reinsurance remains a practice in matching risk with the most suitable capital.

Speaking at the event hosted by reinsurance intermediary Guy Carpenter held in Baden-Baden yesterday, October 19th, leading industry executives discussed some of the trends affecting the market and whether these are structural in nature, a tactical response to immediate market conditions, or simply part of the normal evolution of the reinsurance market.

Nick Frankland, Chief Executive Officer of EMEA Operations at Guy Carpenter, said that current reinsurance market conditions are not necessarily all “doom and gloom”, adding; “The wide variety of supply means choice for our customers. So we must become expert in and able to advise our clients on all that is available, helping to create solutions that exploit this cornucopia. We must also work with the reinsurers and insurers to stimulate demand by filling known insurance gaps and providing solutions for the new breed of risks.”

This is a key piece of the puzzle, the capital agnosticism of the broker is effectively what drives reinsurance buyers to solutions, to a large degree. It’s essential that brokers are capital agnostic, as well as the structure or solution selected, as reinsurance cedents will soon see through any broker that is attempting to steer them towards solutions which offer the best broker commissions.

Brokers have a duty to provide their customers with the best access to the best capital and structures to meet their risk transfer needs. Brokers also have a duty to drive innovation in terms of structures and solutions available in the market, so also need to work closely with the reinsurance and insurance-linked securities (ILS) markets to create new product offerings.

Ulrich Wallin, Chairman of the Executive Board of reinsurance group Hannover Re, said that the traditional reinsurance model provides much more than just capacity. Wallin said; “Our long-term orientated business model provides extensive experience in assessing current and future risks, in managing risks, and in creating tailor-made risk transfer solutions. We offer a consistent client relationship approach and high stability due to reinstatement covers.”

Wallin acknowledged that innovation is key and that new products and ways to distribute reinsurance capital and match it to risk would change the market further in years to come.

Wallin explained the value a reinsurer can add with its depth of expertise; “We support the development of covers for emerging and future risks, for instance infectious diseases, technological and cyber risks. In addition to the support offered for sensing new business opportunities, we also provide distribution capabilities particularly for life and health products in new markets.”

Amer Ahmed, Chief Executive Officer of Allianz Re the reinsurance arm of insurance giant Allianz, said that reinsurance is increasingly a strategic tool and highlighted the increasing trend towards consolidation of reinsurance buying.

“We are seeing a shift towards the use of reinsurance as a strategic tool,” Ahmed said, “to manage capital and earning volatility from a Group perspective, and away from a trading activity at an individual entity or line of business level.”

We’ve written about this trend a number of times in recent years, which combined with the expansion of terms and offering of multi-year covers, the bundling of reinsurance purchases into fewer treaties could increase the risk for reinsurers and those providing ILS capacity. Read our article from 2012; Reinsurers warned against risk bundling, urged to keep focus on primary risk, and this recent piece; Multi-year reinsurance deals may indicate weaker discipline: S&P.

Ahmed discussed how the changing patterns in the market and shift to centralised buying is influencing reinsurance purchases at Allianz. He said; “The market offers a range of alternative instruments – varying by coverage scope, term, capacity provider and security – and we use several of them to manage our retrocession landscape as a portfolio.”

Brian Duperreault, Chief Executive Officer of Hamilton Insurance Group the owner of Bermudian reinsurance firm Hamilton Re, said that he did not see third-party reinsurance capital and ILS, or the reduction in risks ceded to reinsurers from primary insurers as threats. In fact he sees opportunity in the current market conditions for those who are most effective in winning and underwriting business.

“I don’t think that the threat faced by the industry is existential. Yes, it is at a critical inflection point, but we have seen a number of inflection points before and it is usually a place where real opportunities lie,” Duperreault said.

He concluded; “At the end of the day we are all risk takers. We place a risk and match it up with the best possible capital. How well we match risk to capital will be driven by how well insurers, reinsurers and brokers adapt to the winds of change. The brush strokes we use to paint the future of our industry should be big and bold – and I have no doubt that they will be.”

Chris Klein, Managing Director and Head of EMEA Strategy Management at Guy Carpenter, closed the event by saying; “We have been reminded today that not everything stands still, but also that some things do not change. Risk will always exist and there will always be those who see risk either as a threat or an opportunity for reward. Our business remains bringing the two together even if the method and means of doing so changes over time.”

Read some of our other articles on changing reinsurance market trends:

Will pension funds, alternative capital & ILS kill the reinsurance cycle?

Innovate or perish. A message for insurers and reinsurers from Aon.

A smarter, more client-responsive reinsurance market: Willis Re.

Differentiate or consolidation ahead for reinsurance industry: PwC.

Innovate & adapt to navigate a reconfigured reinsurance industry: S&P.

Structural change, lower margins, a deeper reinsurance convergence.

The death of the traditional catastrophe reinsurance model.

Institutional investor appetite for insurance linked assets remains strong.

Pension funds still only dipping their toes into ILS and reinsurance.

Still early days for pension fund allocations to ILS and reinsurance.

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