A burgeoning life reinsurance market and the anticipated upward trajectory for ILS are two of the biggest potential growth areas for Bermuda, while cyber risk remains both an opportunity and a challenge. PwC’s Arthur Wightman and Andy Moore discussed with Bermuda:Re+ILS what might be influencing Bermuda as it heads into 2020.
The re/insurance market is facing some fascinating changes as it looks forward to 2020 and the decade that the new year will usher in, according to PricewaterhouseCoopers (PwC).
Speaking to Bermuda:Re+ILS at the Monte Carlo Rendez-Vous in September, Arthur Wightman, PwC’s territory leader for Bermuda, identified two key themes in the Bermuda market at present: a burgeoning life reinsurance market and the anticipated upward trajectory of insurance-linked securities (ILS).
“In Bermuda the life reinsurance market has really taken off over the last two to three years,” he says. “There’s a lot of capital being deployed into that area—we are seeing a number of incorporations and a number of large deals being done.
“Over the last five or six years those deals have tended to be done by newer companies but we are seeing some global insurance and reinsurance companies participating in that space as well. It’s an interesting development for a market that has traditionally been seen as a property cat centre.”
Wightman added that the ILS market, both in Bermuda and worldwide, has flattened a little over the last year or so—but he expects this to change.
“We are seeing a lot of capital in the wings ready to deploy and also structurally seeing some changes in the market with some degree of consolidation. It’s fair to say that some of the more established, longer-standing placers like RenaissanceRe, Nephila and AlphaCat are tending to get better shares of the marketplace than some of the newer, less established players.”
Another theme Wightman noted was a continued deterioration in Bermuda and worldwide on some of the larger, more complex cat losses—referred to as loss creep.
“Certainly it’s an interesting aspect of the market and we are keeping an eye on whether existing modelling techniques are satisfactory in the light of this, or whether there are some other issues at play that are resulting in companies not being able to work out their losses quickly, and then for that loss to be stable over time,” he said.
On a more macro level, he said that disintermediation is continuing, as brokers and reinsurers start to take on some of each other’s roles.
“We are seeing more of the brokers positioning themselves more in the reinsurance space, and the reinsurers offering analytics and solutions that might traditionally have been in the broker space,” he said. “That has been precipitated by a period of lower returns and companies looking to find ways to grow their business without necessarily a lot of aggregate overall market capacity growth.”
PwC also foresees changes in the nature of insurance, particularly in the world of risk, over the next decade. That’s according to Andy Moore, global insurance risk and regulatory leader at PwC UK, who also spoke to Bermuda:Re+ILS in Monte Carlo.
Moore said that companies need to stop looking in the rear-view mirror and instead look ahead at the risks that will emerge around 2030. His comments echo PwC’s report on the future of risk, published in September 2019, in which the company set out its view of how the insurance risk function will develop.
“We want to be in the position where the chief risk officer is looking forward and charting a course so that insurance companies can navigate the road and get to their destination safely,” Moore said. “The report looks at some of the disruptors, such as climate change and workforce for the future—all of which are impacting insurers.”
Looking at technology, Moore said that assisted intelligence, which facilitates the automation of repetitive, standardised or time-consuming tasks, is now being adopted by many workforces. PwC foresees that augmented intelligence, whereby humans and machines collaborate to make decisions, will emerge around 2030, and then fully autonomous intelligence may emerge after that.
As well as changes in technology, PwC sees four other factors impacting the way that risk is evaluated. The first is rapid urbanisation, the mass influx of people into the world’s cities which may lead to a spike in crime. The second is climate change and resource scarcity. The third is a shift in global economic power, as countries like China become stronger. And the fourth is demographic and social change, as the workforces continues to age in several countries, altering workplace risk dynamics.
In order to cope with these factors, Moore said that PwC has identified four pillars that the chief risk officers of the future need to bear in mind. First, insurance companies need to make the best use of new technology. Second, they need to make the best use of data and advanced analytics. Third, they need to utilise the skills and capabilities of their workforce to their best advantage. And last, they need to create a corporate culture that gives them an edge in taking on all of the aforementioned future challenges.
Another issue highlighted by PwC is technology, which it claims is the biggest worry for reinsurers, as the industry struggles with legacy IT systems.
PwC’s “Reinsurance Banana Skins 2019”, the seventh edition of a survey that has been published since 2007 and featured in the September edition of Bermuda:Re+ILS, concludes that technology is now the industry’s biggest headache. Cyber risk is the second-biggest worry, having ranked third last time.
According to PwC, this reflects the wider insurance industry’s concern about the pressing need for business and technology modernisation.
“There has been a huge technological shift that changes the exposures that reinsurers are facing,” said Moore in Monte Carlo.
Citing worries about legacy systems, the survey’s 320 respondents, spread across 42 territories, said they were particularly worried about the costs and uncertainties associated with finding the right technological solutions.
However, given Bermuda’s history of innovation, few would bet against its assuming a leading role in the technological revolution and turning this pain point into an opportunity.
Arthur Wightman is PwC’s territory leader for Bermuda. He can be contacted at: firstname.lastname@example.org
Andy Moore is global insurance risk and regulatory leader at PwC UK. He can be contacted at: email@example.com
PricewaterhouseCoopers, PwC, insurance-linked securities, ILS, Arthur Wightman, Andy Moore, Bermuda