New capital allows opportunities for growth

Any negative thoughts reinsurers have about the impact that the recent influx of alternative capacity is having on the industry should be dispelled. If anything, it should mean more opportunities for reinsurers, according to Chris Klein, head of sales operations (UK/EMEA) and market relationships at Guy Carpenter.

“Reinsurers should not fear this new source of capacity. Capital is the raw material of this industry in whatever form. It creates complexity but also choice. It is simply a case of finding ways to leverage it and apply underwriting expertise to it to create solutions. And there are many opportunities for the industry to do this going forward generating solid growth.”

Klein identifies three areas of potential growth for the industry, whatever form of capital it leverages.

The first is by increasingly filling the gap between economic losses and insured losses globally. He estimates that economic losses that occurred as a result of catastrophes in 2011 totalled around half a percent of global GDP. “That matters,” Klein said. “And at a time of sluggish GDP growth, there must be solutions the industry can help with.”

He said he anticipates that governments will increasingly look to work with the private sector to offset risk and insure a greater proportion of their catastrophic exposures. He said there are many examples of where this type of arrangement is being explored.

“In the US, Fema (Federal Emergency Management Agency) is exploring options for moving risk into the private sector and then you have the terrorism backstop Tria (Terrorism Risk Insurance Act) coming up for renewal. Could there be private sector participation in that? We think there should be. Not all of it but we, as an industry, understand risk and woul be able to help. And this is a time when governments’ budgets are under pressure. They need to be moving these risks.”

The second area where he foresees growth is around new risks such as cyber security, flood, urbanisation, longevity, nanotechnology and space. Although he notes that some companies are rightly wary of some of these, he recalls a piece of information he saw in recently that put things in perspective.

“I was in Lloyd’s a few weeks ago looking at all these inspirational and interesting quotes they had on the walls. One noted that Lloyd’s underwrote the first motor vehicle in 1904. They didn’t know what to call it and in the policy it is described as a ‘land ship’. That was a new risk back then. Yet look at it now: it is one of the world’s biggest insurance markets and completely commoditised. The same will eventually happen with these new risks we are looking at now.”

Finally, he believes opportunities for growth can still be found in emerging markets – reinsurers need to simply expand their definition of which markets could be lucrative. “They have traditionally focused on the BRIC countries. There is still growth in those but we also need to be looking at other countries around the Pacific coast perhaps, Vietnam and other parts of Latin America.”

Guy Carpenter, alternative capital, reinsurance, insurance

Intelligent Insurer