Another year has begun, and in my regular discussions with various members of the market, I keep being asked what I think the big issues will be over the coming 12 months.
Well, here are some of my thoughts on the things that will arise in the global re/insurance market in 2017.
- Pricing will remain tough
The industry continues to find itself in a pricing malaise. There had been some hope among underwriters that maybe – just maybe – there would be some hardening and pricing would increase in some areas. But as evidenced at the January 1 renewals, at best there was a year-on-year moderation of pricing reductions in several business lines. Obviously that is more welcome than further widespread pricing cuts, but underwriters will have no doubt been left disappointed that they were unable to get more meaningful rises, especially when considering last year saw the highest level of property catastrophe losses since 2012 when Hurricane Sandy hit. Unless a huge “mega event” hits, or perhaps investment opportunities elsewhere improve, then capital will remain in the re/insurance industry and underwriters will continue to find the pricing environment tough.
- There will be further merger and acquisition activity
Because the pricing environment remains difficult, growth for even the largest companies in the re/insurance industry will continue to be hard to come by. Once again, that could lead to M&A activity. It took some time for 2016’s headline-grabbing deal to come to fruition – in October when Japan’s Sompo revealed it was to buy Endurance Specialty Holdings for $6.3bn - and the same may happen again this year. There is certainly plenty of speculation as to who may be involved in any future M&A – more or less every company in Bermuda has now been named in some deal or other – but the ultimate identity of any parties will only be revealed at the last possible moment. There is also the possibility of further consolidation in the broking market – intermediaries are also feeling the pressure owing to the poor pricing in the re/insurance market.
- International expansion
Some of the early news in 2017 has seen some of the largest re/insurance companies in the world handed approval to begin operating in India. So far this year, XL Catlin, Swiss Re, Hannover Re and Lloyd’s have all been granted various states of approval to begin their operations in the country, and they are set to be joined by various other international re/insurance groups in the coming months. Elsewhere, Latin America will continue to attract players from the global re/insurance market. Indeed, Axis Capital became the latest company to make a move into the region when it opened an office in Miami in late January. This followed on from insurance specialist law firm Kennedys which expanded its already sizeable presence in the region at the beginning of this year by opening a new office in Mexico City. Then there is the Far East. The interesting aspect of expansion eastwards is the proliferation of Japanese companies making sizeable acquisitions in the west. Mitsui Sumitomo, Sompo and Tokio Marine have all made significant inroads into the Western re/insurance world in recent years, acquiring companies with significant European, US or Bermudian presences, and it will be interesting to see whether that continues. Fosun took the decision to sell Ironshore late last year, but the Chinese conglomerate is reportedly one of the bidders for Greek-state-owned insurer Ethniki.
- The continued rise of InsurTech
Hardly a day goes by without news of some re/insurance industry partnership with an innovative technology business. The technological revolution has finally made its way to the re/insurance industry, and companies are keen to ensure they remain at the forefront of this wave. The worry is if they do not keep abreast of these technological changes, then they could be cut adrift from the rest of the market.
While this quartet of key issues may seem rather obvious, it will be interesting to see whether they do indeed materialise or not. Obviously, it would be good for the industry as a whole if the first does not actually occur – an increase in pricing would suggest the industry is getting stronger, and that is something that we can all hope for. We will see at the end of the year which of the above actually occurs!