Reinsurers offer more multi-class, multi-year deals
Reinsurers are increasingly offering more complex, multi-class, multi-year deals in an attempt to set themselves apart from the intense competition in the market while others are moving into speciality lines and considering mergers & acquisitions.
That is the view of Peter Hearn, chairman of Willis Re, writing in a report by the broker into the market. He said the strategic shift was being prompted by a plethora of challenges including rate reductions, new capacity, new market entrants, low interest rates and a greater retention of reinsurance premiums by large buyers.
“Faced with these market headwinds, reinsurers are adopting a variety of strategies. Larger reinsurers are using their balance sheet strength and technical ability to offer more capacity and more complex, multi-class, multi-year deals,” Hearn said.
“We have seen other reinsurers expand into specialty lines and many have developed multi-channel capacity offerings seeking to use their underwriting expertise to deploy capacity on behalf of capital markets. Additionally, we have seen the rise of pooling arrangements that give smaller reinsurers the opportunity to access business they might not otherwise see in their local markets. M&A activity is always an option for larger companies as they look to manufacture growth through acquisition.”
He also noted that it is misleading to assume reinsurers are performing well at the moment, arguing that the recent strong results from the industry has been more as a result of luck than judgement.
“2013’s underwriting performance is not reflective of strong market pricing and restrictive terms and conditions, but rather from a paucity of natural and man-made catastrophes. 2013 natural catastrophes were half of what was experienced in 2012.
“Specifically, the North Atlantic hurricane season was virtually non-existent with the lowest total of named storms since 1982. The key influence on the 1 January renewals is over capacity triggered by a number of converging factors. Strong 2013 results have bolstered traditional reinsurers’ already strong balance sheets,” he said.
