Purity pays dividends for PartnerRe

How many “pure” reinsurers—which write no insurance business in any form, just reinsurance—on Bermuda, if not in the world, can you name? If you began and ended with PartnerRe, congratulations.

PartnerRe’s strategic decision to operate as a “pure play” reinsurer is still paying dividends—as is its private ownership, meaning it is not pressured by quarterly reporting or the sentiment of equity markets, according to Emmanuel Clarke, its president and chief executive officer.

Given that these benefits are combined with a hardening market, he says he is very optimistic about the future of reinsurance as a whole—and by PartnerRe’s positioning within the market.

Clarke points out that one consequence of the heavy cat losses the industry has experienced in the past two years—from a combination of hurricanes, wildfires and other events—has been that many cedants have rediscovered the value of reinsurance, and want to buy more to hedge the volatility these losses have caused them.

They are also increasingly concerned about emerging risks such as cyber and climate change—and want to work with their reinsurers to better manage them.

“We see more risk, risk development, the effects of climate change, the development of cyber and the transformation of the industry that will lead to more risk and risk transfer,” Clarke says.

“Second, we see a continued distaste for volatility from our cedants. Insurance companies are very eager to maintain low volatility.”

PartnerRe has all the tools to help deliver these solutions, Clarke says, and it also has scale and significant financial strength—validated when it was upgraded by AM Best in August 2019 from ‘A’ to ‘A+’.

Rating approval

At the time of the upgrade the rating agency said the decision reflects PartnerRe’s balance sheet strength, which AM Best categorises as strongest, as well as its adequate operating performance. It added that it has a very favourable business profile and appropriate enterprise risk management (ERM).

AM Best added that the revision was due to the reinsurer’s successful demonstration of its ERM functions and framework over the past several years and, in particular, that PartnerRe’s underwriting performance in 2017 and 2018 was well within expectations during a period when the industry experienced a significant level of catastrophe loss activity.

Clarke stresses the importance of the fact that PartnerRe is privately owned, meaning it does not have to report results on a quarterly basis and has no concerns about questions from equity analysts or movements in its share price.

“Private ownership is a better model for a reinsurer, because of the long-term nature of the risks it must deal with and the volatility caused by other risks,” he explains.

He stresses the quality of PartnerRe’s leadership team, which was overhauled in February, and the expertise and solutions for the company.

Clarke underlines that PartnerRe defines itself as a global, diversified, reinsurer. He describes the fact that PartnerRe is a pure reinsurance company, unlike many of its rivals which also write insurance business, as being critical to its offering.

According to Clarke, writing insurance as a business requires scale and writing reinsurance requires relevance, and few companies are able to marry these successfully.

“This is a deliberate choice on our part—to be pure,” says Clarke. “We do not compete with our clients. This allows us to concentrate on execution, on the thing we know how to do well—reinsurance.

“That is a very different business model from insurance. All the folks that have tried to lead the two business models have been challenged on execution. That’s a clear differentiation, and that has allowed us to focus on two things in particular—relevance and agility.

“Every company wants to have those two things, but it’s the degree to which you can be relevant and agile.

“We believe we have the size to matter in terms of relevance, but we’re small enough to keep the nimbleness and agility to make the right choices.”

Bermuda’s role

Clarke is keen to stress how important Bermuda is in the global market and that in his view it plays a significant role in the global risk transfer industry.

According to Clarke, Bermuda is the heart of the property cat market for good reason: it is an extremely attractive, re/insurance-friendly location with a deep resource of intellectual capital. It benefits from having a Solvency II recognised, world-class regulator in the form of the Bermuda Monetary Authority that is highly regarded throughout the industry.

“Bermuda has been growing steadily in its importance to the industry since the mid-1980s and continues to attract meaningful global capital. During that time it has continued to thrive, weathering all manner of manmade and natural catastrophes as well as regulatory and tax changes,” he says.

“Despite the results of the last two years and the impact of mergers and acquisitions and industry consolidation, Bermuda remains resilient, paying claims on time and fully committed to the global re/insurance market.”

Clarke recalls that Bermuda was a prominent hub for re/insurance before insurance-linked securities (ILS) took off, but had the foresight to evolve to become an efficient market for the ILS industry by adopting regulatory and legal changes.

Bermuda has been the pre-eminent ILS domicile of choice for years and while it faces competition from other jurisdictions, its regulatory framework, expertise and track record continue to make it a very attractive place to match risk to capital, he says.

Willingness and ability

Bermuda has demonstrated time and again that it has the willingness and ability to pay large claims and the resilience to continue as a leading underwriting hub for the global market, Clarke says.

Hurricanes Andrew, Katrina, Rita and Wilma, the hurricanes and wildfires in 2017/18, earthquakes in Japan and New Zealand and Typhoon Jebi in 2018, are all examples of natural events where Bermuda has played a huge role in the payment of losses.

Following hurricanes Harvey, Irma and Maria in 2017, the Bermuda market handled about 30 percent of total insured losses. Bermuda has played a central role with regard to the payment of large claims for manmade damage such as those arising from the 2001 World Trade Center attacks, the 2010 Deepwater Horizon explosion, and the 2017 NotPetya cyber attack.

Bermuda’s strength rests on a foundation of rigorous regulation, a business-friendly environment and high quality intellectual capital, Clarke says.

“To retain its position in the market Bermuda must ensure that regulations keep up with international standards to protect our reputation in the market, and must remain an environment that is attractive to business,” he says.

“That includes attracting the best people into the industry. Like other Bermuda-based reinsurers, over the years PartnerRe has supported the development of local talent development with scholarships and internships,” he concludes.