A recent report from Willis Towers Watson shows that companies that can be seen to outperform the market are making use of reinsurance and insurance-linked securities (ILS) to improve their capital management.
The new and comprehensive study examines differing approaches from UK general insurers at navigating the challenging market conditions, finding that efficient reinsurance capital plays a key role in helping companies to outperform.
The main message from the report is that UK general insurers that operate in similar business classes and in the same economic environment have reported varied results over the last five years, according to the Willis Towers Watson (WTW) report that utilises analysis from Prudential Regulation Authority (PRA) registered insurers.
“The significant performance spread among direct competitors in the UK non-life insurance market over the last five years demonstrates that companies have the ability to break free from the chains of external factors to improve stakeholder returns,” said Charlie Kefford, Director at WTW.
The report discusses a number of strategies and approaches that companies can, and have adopted in order to bolster returns in a challenging landscape, highlighting the use of reinsurance and ILS capacity and features in order to improve capital management.
The firms that have outperformed the market in recent times, says WTW, have utilised innovation that includes more creative use of reinsurance, securitisation and ILS.
It’s clear that part of the reason rates in the insurance and reinsurance market have been pressured in recent times is down to the influx of alternative capital that is willing and able to assume insurance and reinsurance-linked business.
But as we’ve stressed at Artemis numerous times, and which has also been highlighted by industry executives, experts and analysts, the features and capacity of the ILS space presents re/insurers with ample opportunity to diversify, increase efficiency and ultimately improve returns and mitigate impacts of the current environment.
“Recent reinsurance market conditions have undoubtedly created more attractive risk transfer opportunities for insurers in selected classes. A period of below average large natural catastrophe events and a flood of new capital seeking insurance risk has softened prices of traditional reinsurance cover in several business lines, while the growing insurance-linked securities (ILS) market also offers potential alternatives for freeing up capital to drive returns,” explains WTW.
The risk landscape continues to evolve and insurers and reinsurers are searching for yield, efficiency and means of staying relevant to an overly competitive marketplace.
Insurers have befitted from a buyers reinsurance market in recent times, as the efficient wealth of capital from both traditional and alternative sources has enabled primary players to secure efficient reinsurance protection and favorable terms at renewals.
But in order to outperform the market and provide value to shareholders innovation is key in the current market environment, and those that embrace the abundance of capital and features from the ILS sector can position themselves well to withstand adverse market developments, and ultimately beat the competition.