Smart thinking will outweigh the competition
Reinsurers must demonstrate smart thinking, a large balance sheet and the ability to provide clients with innovative products if they are to survive the ongoing dynamics within the market.
That is the view of Paul Sandi, head of North American casualty treaty, Canopius, who said that the recent acquisition of Canopius by Sompo has put them on a level playing field with the world’s largest reinsurers.
“There are quite a few different dynamics currently going on in the industry. We’re in a soft market and the yields from bonds and other investments aren’t great, so we have outsiders looking at the insurance market, but that creates opportunities for all of us,” he said.
Speaking of the alternative capital, Sandi likened the hedge funds to Warren Buffett’s Berkshire Hathaway, saying that their way of operating is just a type of model.
“If you look at the hedge funds, what they’re doing is no different from what Berkshire Hathaway does. They’re building up a float using the premium they generate, which is a cheaper way of getting access to capital, and then investing it in other areas,” he said.
He also said that in the quest for yield—and given the state of the US economy—the pension funds have a natural attraction to catastrophe business, but he questioned the level of understanding towards the risk they are buying into.
“The question is ‘how many of those guys understand the risk that they take’? Also, how much is being driven by modelled output, rather than modelled plus some reflection on what the output is,” he said.
Since its acquisition by Sompo, Canopius has been positioned as the company’s growth platform, securing a heavily backed balance sheet.
“For us, following the Sompo acquisition, we’re in a really good position. To survive the next three to five years as a reinsurer, you’ll need a big balance sheet behind you, which we now have. The next question is how to use that balance sheet cleverly to access opportunities as they emerge,” Sandi said.
“We can compete with the alternative capital and some of the large reinsurers, which a year-and-a-half ago, we wouldn’t have been able to.”
