Traditional reinsurers will either have to get big or get technical if they are to survive a market that is evolving faster than it has in 35 years.
That is the word from Paddy Jago, president of Willis Re, who says that reinsurers will have to fight to stay relevant as they face increasingly challenging market dynamics.
“To be relevant your number one priority is to have a high degree of expertise. That matters above all else”, says Jago.
“Secondly, I think you have to be of a certain size.”
“Lastly, you need to have relationships in place in the reinsurance market. These three things will dictate whether you remain meaningful in the reinsurance business in the future.”
Property cat writers are facing particular pressures, he says, tempting many to consider diversification as a means to escape some of the strongest headwinds facing the sector—with the influx of convergence capital being particularly strongly felt in cat-focused peak peril risks.
This dynamic creates challenges of its own however, and Jago warns that re/insurers considering new lines should “proceed with caution”.
“What concerns me is that you’ll have markets going into areas where they have no idea what they’re doing.”
Jago says that while there is the potential to uncover a potential “pot of gold” in new geographies and lines, development will not be without its perils.
If companies enter new markets and lines without the right technical know-how “they could end up exacerbating their [existing] problems, and instead of growing their top line—which is the reason they’re entering new markets in the first place—they could end up exploding their bottom line.”
reinsurers, Willis Re, diversification, convergence, alternative capital