Regional reinsurers will face an increasingly tough time coping with catastrophe losses and global competition in areas such as Asia and Latin America. That is the view of David Watson, president and CEO of XL Re Europe.
Watson said that it has grown increasingly difficult for smaller, regional reinsurers to cope with the kind of catastrophe losses that were a feature of 2011. He said that it is difficult to see a future for regional reinsurers exposed to significant localised losses. “Reinsurers need to increasingly have a global franchise. While they may well want to act locally and have a regional view, it is increasingly necessary for them to have a deep global footprint,” he said.
Addressing XL’s route into emerging markets, Watson said that the company tends to build rather than acquire entities in regions such as Asia and Latin America. He said that the company was in a strong position to benefit from existing clients relationships and distribution channels thanks to its insurance arm, but highlighted the importance of proximity to the client.
Watson said that XL and other reinsurers are watching regions such as Asia with considerable interest. He explained that current levels of insurance penetration could only increase in places such as China, and in spite of the recent blip brought on by the state of the global economy. As asset values grow, so too will opportunities for those willing to invest time and energy into developing a presence in these regions, he said.
He admitted that entering such markets is not without its challenges, particularly around the granularity of data, but added that the brokers have played a key role in developing capabilities. Watson said that this was particularly true in the catastrophe space, where brokers have made considerable strides in enhancing data capture.
Not that XL is totally averse to exploring opportunities in relatively unmodelled territories. As Watson explained, sometimes companies have to create their own models and data tools in order to enter such markets. He said that such situations aren’t ideal, but added that in such cases you necessarily have to take an informed view of risk.
XL, emerging markets, reinsurance, Latin America, Asia