Reinsurers facing battle to stay relevant

Reinsurers facing battle to stay relevant

Reinsurers are in danger of becoming irrelevant if they fail to react to the ongoing market instability, claims Willis Re chief executive Paddy Jago.

The state of flux that currently resides within the reinsurance space is greater than in any other period in his 35 year industry career, Jago said.

And he warned that reinsurers must remain relevant if they are to survive.

“What do you need to be to survive? Well, if there’s one thing I’d advise all reinsurers to be at the moment, it is to remain relevant,” he said.

“To be relevant, your number one priority is to have a high degree of expertise. That matters above all else. Secondly, I think you have to be of a certain size. Lastly, you need to have relationships in place in the reinsurance market. These three things will dictate whether you remain meaningful in the reinsurance business in the future.”

Property casualty insurers are under considerable pressure at present owing to the growing influence of the capital market. More than $7.1bn worth of cat bonds were issued in 2013 and over $1bn have already being issued this year.

This has led to further softening of reinsurance rates and many reinsurers are now attempting to diversify their offerings.
Jago warned those doing so to proceed with caution.

“What concerns me is that you’ll have markets going into areas where they have no idea what they’re doing,” he commented.

“For me, the broker, maybe that will be a pot of gold, because I’ll have a market who is unable to rate the risk commensurate with the exposure.

“But if they don’t understand what they’re doing they could end up exacerbating their problems, and instead of growing their top line-which is the reason they’re entering new markets in the first place, they could end up exploding their bottom line.”

Jago’s comments will be of concern to smaller and medium size reinsures who have traditionally depended on the property catastrophe market.

However, despite Jago’s warnings, there are some in the market who think the specialised service offered by traditional reinsurers will allow them to survive the current market upheaval.

BMS chief executive Dane Douetil is one of those. He told Reactions the unique products and specialised underwriting skills that reinsurers provide to their insureds is still a priority among some clients and this will allow them to survive in the current market.

“Certainly our clients do BMS will certainly deal with the big stock companies and we’ll do business for them, but in our real niche area our clients want specialised U&L products that are geared to their own book of business,” he says.

“Whether it’s a religious mutual insurance company based on the East Coast, or a medical mutual in America, they all have individual needs.

“They want the market to understand what those needs are, to understand them as entities and to back them with unique products.

“I think that’s very different from your industry loss warranties /catastrophe bonds/commodity type deals where the very large insurers want to protect their aggregations.

“So they are in a very different part of the market and what they want to make certain of is that people understand them as a business and what they are trying to do and are long term.”

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