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Friday 10 September 2010
Author: Russell Group

As the reinsurance market gathered in Monte Carlo new research has found that the industry is becoming increasingly divided over its future direction.

The study undertaken by PricewaterhouseCoopers (PwC) found there was a clear split over the question as to whether fundamental overhaul of reinsurers’ business models is needed following the financial crisis. 

The report, compiled from in-depth interviews with senior executives of leading P&C reinsurers in Europe, Bermuda and the United States, revealed a contrast between how European reinsurers are responding to the financial crisis, compared to those based in Bermuda or the US.

The paper suggested the majority of European reinsurers have already begun implementing substantive adjustments to their strategy. These adjustments included plans to change the way they do business; with some going as far as to say they were repositioning the risk transfer proposition as they analysed the emerging changes in the market. In comparison, in the US and Bermuda, most executives said their fundamental business model had not changed as a result of the financial crisis, signalling diverging strategic directions for the global reinsurance industry.

Achim Bauer, Partner, at PwC said: “The global reinsurance market has proved its resilience but dramatic changes in the global risk landscape mean there are more obstacles and opportunities to come. Reinsurers need to stand out in the face of limited growth prospects and continued market uncertainty – all while trading at depressed book value.”

While the majority of participants agreed the reinsurance marketplace has generally ‘held the line’ as the overall market has softened, they identify the biggest threat is companies failing to maintain underwriting discipline in an increasingly competitive environment. Most claimed that underwriting discipline was always a priority; however, there is now a renewed focus on improved underwriting controls due to the financial markets.

Speaking in Monaco Arthur Wightman, partner, PwC Bermuda, said: “As companies no longer see the investment returns of a few years ago, managing both sides of the balance sheet has never been more important. Given the constantly evolving landscape of risk, successful business models will be nimble to changes in demand and new opportunities. They will consistently define and execute the full risk transfer proposition to an entire spectrum of stakeholders, including customers, investors and regulators.”

Alongside widespread concerns that current pricing and the soft market were not sustainable, reinsurers also cited continued equity market volatility, inflation/deflation, interest rates and lack of growth as key challenges facing the industry. Added to this, many respondents raised questions over whether some companies would be able to re-load following a large catastrophic event.