Large players are using size to battle tough market conditions: KPMG
Large players are entering into alternative capital and infrastructure investments to ride out the unfavourable conditions in the market.
Mark Taylor, insurance partner at KPMG told Intelligent Insurer that in the current environment larger players are employing several strategies to ensure that profits remain healthy.
“Large players who have been around long enough to have seen it all before appear not afraid to decline business if rates and terms don’t meet their hurdles. Equally, a different play is to go for differential terms and conditions if they are the leader,” he said.
“Another strategy is the slicing of the traditional portfolio and moving into higher layers. While this might increase volatility and capital requirements, the latter of no real concern to the larger players, it allows them to play in areas the smaller players cannot compete. The knock-on impact of this on the smaller players is to look to build scale through mergers and acquisitions.”
Taylor says that on the asset side of the balance sheet, the search for higher yields in the prolonged low interest rate environment continues.
“For larger reinsurers there is a definite switching into alternative capital investments. Others have moved into infrastructure investments which give guaranteed revenue streams, real estate and private equity investment,” he explained.
“Solvency II is also an interesting opportunity for reinsurers and we could see smaller monoline insurers looking to the reinsurance market to offer innovative solutions to meet their needs to survive under the new regime.”
As reinsurers withdraw capacity from property catastrophe and move into areas such as speciality, pricing pressure in these lines of business will increase, putting pressure to increase ceding commissions.
“It could become a war of attrition and not dissimilar to what the UK motor market had seen in the past,” said Taylor.
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