How reinsurers are innovating in the soft market

11 January 2017

The buyers’ market of recent years has spurred reinsurers to look beyond traditional risks and to release new products.

Innovation is vitally important in a soft insurance market. Due to the prolonged soft cycle, reinsurers and reinsurance brokers have had to be more innovative and flexible – whether by bringing new products and structures to market or just by bundling multi-class reinsurance programmes together.

This is where analytics and modelling are particularly helpful, says Ed Hochberg, CEO, North America, JLT Re. “The increased sophistication allows reinsurers to look at risk in a more holistic way.

“It can give them a good feel of the risk/reward relationship between different types of transactions and place a well-reasoned bet that is quantifiable and consistent with their ERM guidelines,” says Hochberg.

New risk areas

Analytics and modelling creates opportunities in areas such as mortgage and potentially other adjacent areas, says Hochberg. “Similarly, with flood, where there is a lot of interest because reinsurers are getting increasingly comfortable with their ability to understand the risk profile around the flood risk they would be assuming.

“And it is a way to expand the offering and grow outside traditional areas, which have been relatively stagnant in recent years.”

A.M. Best recently issued a report titled ‘Innovation: The Race to Remain Relevant’, which notes that reinsurers have made a number of moves to position their organisations for long-term survival, and increasingly seem to be viewing capital market capacity as an opportunity rather than a threat.

This is just as well, given that JLT Re estimates that alternative capital has reached approximately $70 billion – roughly 21% of total dedicated reinsurance sector capital.

Enduring relevance

The reinsurance market is always going to be relevant because of the capital required by insurance companies to remain solvent in the evolving global regulatory environments, says Stuart Beatty, CEO, Asia Pacific, JLT Re.

“Regulators are clearly going to become more and more focused on conservative positions from a capital adequacy perspective for insurance carriers. It will always be relevant, whether it is in the form of traditional reinsurance products or alternative products in the capital markets.

“Wherever you are in the world, regulators are critical to ensuring solvency is in place for the insurance and banking community. That is their primary function, and they all have different interpretations of capital adequacy,” Beatty says.

For further information please contact Ed Hochberg on +1 215 309 4520 or at ed.hochberg@jltre.com.