Live long and prosper
The October issue of Intelligent Insurer examined the dynamic of corporate longevity in the reinsurance industry. This is particularly relevant in relation to the European market, home to several of the industry’s biggest reinsurers—and also the oldest, with the likes of Swiss Re and Munich Re clocking up more than 100 years of corporate history.
It is also very relevant in relation to the rapid change taking place in the industry. As Richard Foster, executive in residence at Yale Entrepreneurial Institute and a specialist in the subject of corporate longevity, pointed out in that issue, corporate longevity has as much to do with luck as it does with judgement. Operating in a sector that changes little and benefits from economies of scale—both factors true of reinsurance—is one of the greatest indicators of a company’s ability to survive for a long time.
Until things start to change, that is. Under these circumstances, even big companies committed to change and innovation often struggle to adapt quickly enough, compared with more nimble, newer, competitors. This thesis should act as a word of warning to many incumbent players in the industry.
Across the Atlantic
Things are different in the US—at least in the sense of the length of reinsurers’ histories. While it seems a well-known fact that Berkshire Hathaway can trace its roots back to a textile manufacturing company established in 1839, in fact, the business had little involvement in anything approaching risk transfer until much later. It bought National Indemnity Company, which can trace its own roots back to 1940, in 1967.
This is about as old as it goes for US reinsurers. Everest Re goes back to 1973 as the former reinsurance arm of The Prudential. TransRe was founded in 1977. Toa Reinsurance Company of America began business as a separate company in 1982 (before this it existed thanks to a strategic alliance between The Toa Reinsurance Company (Tokyo) and The Mercantile & General Reinsurance).
While these companies are relative infants by the standards of some of Europe’s senior players, they might still wish to consider for a moment just what it takes to stay the course as a company in this day and age—especially in an industry grappling with many new entrants and new ways of transferring risk. Some might even call insurance-linked securities (ILS) in this context a disruptive technology.
Predicting long life
Vicki TenHaken, a professor of management at Hope College, has done comprehensive research into this matter. In a paper called Building Endurance: common practices of companies in business more than 100 years, which she produced with Makoto Kanda of Meiji Gakuin University, Japan, she sought the qualities that help companies last longer.
TenHaken can also starkly illustrate that the lifespan of companies globally is diminishing rapidly.
