Diversification is the new mantra for reinsurers

As current market conditions become increasingly challenging, diversification is becoming the new buzz word, with the reinsurance market reshaping in earnest.

This is according to Willis Re’s renewals report, which added whether diversification is by class or by geography, reinsurers are being actively rewarded both by investors and buyers who see

diversification as key to sustainability, along with size.

“Relentless rate reductions, low investment returns and the continued influx of alternative capital have offered no respite for reinsurers at the January 1, 2015 renewal season,” said the report.

According to the report, a consequence of this is that long-rumoured M&A activity is now a reality, with some companies recognising that any further delay is only likely to see further deterioration in their valuations.

“With only a limited supply of attractive target companies, consolidators looking for scale and diversification are moving as company valuations become more reasonable for both parties,” it added.

John Cavanagh, chief executive officer of Willis Re, said: “Yet again, buyers have held sway. Also adding to reinsurer woes are the predictions that the global reinsurance market is only just managing to cover its cost of capital in 2014 and may fail to do so in 2015. Arguably, the continued lack of demand and oversupply of capital can only keep driving pricing down: unlike other financial markets, the reinsurance market lacks inherent depth, with no structured secondary trading market to help absorb the excess capacity. As a sector, we need to create depth.”