Is Now the Time for Reinsurers to Diversify? Companies May Consider Entering the Primary Market.
Strategic Considerations for Reinsurers
Economic uncertainty continues to bear heavily on the mind of business leaders across industries. The insurance industry is no different, where the economic downturn can impact all aspects of a company’s value chain, from products to investment return to insured losses.
Market Changes
Executives in the Property & Casualty (P&C) Reinsurance area, which has exhibited historically attractive business performance, are seeing their business margins diminish or disappear, primarily due to disappointing or deteriorating underwriting results. This deterioration can be due to the increased severity of their catastrophe-prone books of business. As Reinsurers evaluate their risk profiles, pricing, and performance metrics, the capital providers are seeing desirable pockets of primary insurance carrier performance in the U.S.
Industry Response
The shorter-tailed primary writers in the U.S. have been recording relatively desirable return measures, generating results that have not gone unnoticed by their reinsurance partners. Some reinsurers have noted this trend and are considering the tradeoffs and benefits of possibly entering non-correlated lines of business. Companies are beginning to enter several new insurance markets, providing desirable business characteristics, risk profiles, and return metrics.
Key to Success
For many historically catastrophe-exposed reinsurers, the primary market offers attractive non-correlated risk business profiles exhibiting favorable return metrics. However, to effectively capture desirable returns, organizations must understand that real risks and opportunities require a structured, focused, and informed approach to participate in the new areas. These require consideration of operational elements that are very different than what reinsurers have historically housed within their operating companies.
