26 October 2015 Insurance

Displaced talent could drive more innovation

Merger and acquisition (M&A) activity, alternative capital to the re/insurance market and the continued low frequency of windstorm catastrophe losses in the US are all on the radar for this year’s PCI meeting.

Consolidation also presents reinsurance opportunities, as one plus one rarely equals two in any merger. So says Axel Freiboth, managing director for North America at Hannover Re who predicts that displaced talent could end up driving new products into the marketplace.

“There will be teams looking for new homes for their business which in turn could result in new programmes being placed in the market,” he said.

“Additional capital is still flowing into the re/insurance market as long as yields are still low from other investment opportunities, which actually is a complement to the re/insurance industry, still offering an above-average return in the eye of the investors.”

This surplus capital will continue to drive consolidation.

“There seems to be a general interest to grow portfolios to gain or maintain relevance. There is more to success than growth alone. What counts is profitability,” Freiboth said.

With Hannover Re preparing to celebrate its 50th anniversary next year, a business line that wasn’t even conceived at the firm’s inception is one Freiboth regards as ripe for expansion: cyber.

“Cyber is certainly a topic that continues to evolve. More and more standalone programmes arebeing developed and protected by reinsurance. There is also an increased interest for aggregate covers from certain companies to stabilise their earnings, especially with increased retentions on the property per risk and property cat reinsurance protections.

“Hannover Re is well positioned with excellent ratings and capital base to offer solutions to our clients. Our international diversification allows us to focus on business still offering sufficient margins for our business,” he said.

With alternative capital still flowing in and disrupting traditional reinsurance models, Hannover Re aims to “concentrate on our existing reinsurance relationships for our client base and offer those solutions they need to weather the continued competitive market environment”.

For Frieboth alternative capital is seen as a complement to the traditional reinsurance products especially where there is a need to provide capacity for peak risk exposures.

“It will be hard, however, to deploy the alternative capital for working layer business or casualty exposures, an area Hannover Re has successfully supported its clients for decades,” he added.

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