Beware of rapid diversification: Willis Re

The reinsurance market is in the midst of some of the biggest turmoil it has seen for decades and traditional players should be cautious about diversifying too quickly into lines they may not understand as they try to remain relevant to clients.

That is the view of Paddy Jago, president of Willis Re. “Traditional reinsurers must remain relevant in order to survive challenging market dynamics, but stay mindful about which areas they diversify into,” he said.

Jago said that the reinsurance market is in the greatest state of flux that he has ever seen over his 35 year career in reinsurance.

“So what do you need to be to survive? Well, if there’s one thing I’d advise all reinsurers to be at the moment, it is to remain relevant,” he said.

“To be relevant, your number one priority is to have a high degree of expertise. That matters above all else. Secondly, I think you have to be of a certain size. Lastly, you need to have relationships in place in the reinsurance market. These three things will dictate whether you remain meaningful in the reinsurance business in the future.”

As traditional property-catastrophe reinsurers experience increased competition from the influx of capital markets capacity, some will diversify into other lines of business. Those doing so should proceed with caution, warns Jago in a video blog on WillisWire.

“What concerns me is that you’ll have markets going into areas where they have no idea what they’re doing. For me, the broker, maybe that will be a pot of gold, because I’ll have a market who is unable to rate the risk commensurate with the exposure. But if they don’t understand what they’re doing they could end up exacerbating their problems, and instead of growing their top line – which is the reason they’re entering new markets in the first place, they could end up exploding their bottom line,” he added.