23 January 2015News

Capital management is crucial going forward

Current conditions mean that investors must weigh up the variety of reinsurance asset classes that are available to them and assess whether the influx of capital is set to intensify or slow down.

This was according to a panel of chief executives speaking at the ninth annual PwC/S&P Bermuda Reinsurance 2014 conference, who discussed what actions reinsurers must take to remain relevant and drive competitive differentiation in an increasingly crowded market place.

Jeff Sangster, executive vice president and chief financial officer, Validus, said he believes there is a structural change occurring with the alternative capital in the market.

“That change is adding efficiency to the market,” Sangster continued. “Taking out for certain risk intermediaries where the investors can support that risk directly without the additional input from those intermediaries is a more efficient approach. That said, that’s not the right approach for every risk, so there is a balance that needs to be found there and I think we are in the process of finding that balance.”

When discussing what sets one reinsurer apart from another, Jay Cohen, managing director, Bank of America Merrill Lynch Global Research, said: “What distinguishes them is frankly what happens over time. What happens when there are catastrophe losses - how do they fare? How do they manage their capital? There are really three things I am looking for them to do: Price the risk well, manage the risk well, manage their capital well. Unfortunately, you only see that over time.”

Sangster added that it seems fairly certain that the alternative capital is here to stay.

“Traditional reinsurers and insurers are not going away, that’s always going to be a piece of the industry,” he said. “The big question is where that balance ends up. Is it 50-50, is it 70-30, one direction or the other? I think when that question gets answered ... when that shift finally settles that will be the interesting thing - to see how the industry looks.”

He concluded: “I don’t think you want to be purely in one camp or the other because there is going to be some combination at the end of the day.”

To read about PwC’s Bermuda Reinsurance Conference in full, please click here.