Innovation will kick-start demand

11 January 2017

At a time when the competitive reinsurance market needs cutting-edge products to stimulate demand, you can count on London to deliver.

The reinsurance sector has a lumpy track record in responding to calls for innovation. Most activity occurs at the extremes of the cycle: hard markets drive the need for ‘market-making’ products; soft markets require ‘new’ products to foster growth.

The current difficult market environment is once again encouraging risk carriers to focus on innovation to address the current imbalance between supply and demand.

Challenges and opportunities

Supply remains abundant due to traditional reinsurers’ strong balance sheets, and a sustained influx of alternative capital. Demand has been weaker because of the difficult global economic climate, improved ERM practices and a flurry of M&A activity. The result has been a much reduced reinsurance spend in recent years.

This competitive market situation is forcing insurance carriers to offer new solutions that reflect evolving client needs.

It is also creating opportunities for the reinsurance sector. Developing new reinsurance products should ultimately spark additional demand, eventually helping to alleviate the sector’s oversupply.

Demand on the up

Two factors are encouraging insurance carriers to ask whether they should be buying more reinsurance:

  • the comparative cost and availability of reinsurance
  • the reinsurers’ willingness to offer more dynamic programme structures and product coverages.

There are early signs that this pick-up in activity has started to happen. We are beginning to see an uptick in demand, as (re)insurers offer new products, and reinsurance structures address the evolving risk landscape.

This has seen new offerings emerge, such as the bundling of multiple classes into single reinsurance programmes. It has also prompted a new or growing appetite for mortgage indemnity, terrorism, flood, cyber and trade credit reinsurance.

Solutions for local, state and national governments’ catastrophe and systemic exposures are also becoming more prevalent.

London leads the way

The London market has always been at the forefront of such innovation drives. The progress so far this year should only be considered a starting point.

We can expect London to continue developing cutting-edge (re)insurance products to further boost demand, particularly in emerging markets and for emerging risks.

Please contact Keith Harrison on +44 (0)20 7886 5308 or at keith.harrison@jltre.com for more information.