Six Trends That Will Determine the Future of Global Non-Life Reinsurance Authors
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This time is different Six trends that will determine the future of global non-life reinsurance Authors
Clive Buesnel Insurance Leader – UK +44 (0)20 7303 3247 [email protected]
Neal Baumann Global Insurance Leader +1 212 618 4105 [email protected]
Kurt Mitzner Insurance Leader – Germany +49 21187 722656 [email protected]
Peter Evans Insurance Research Leader – UK +44 (0)20 7303 0010 [email protected]
Will Wilson UK Insurance Regulation & Advisory +44 (0)20 7007 7088 [email protected]
Gaurav Narula Insurance Research – UK +1 678 299 5112 [email protected]
Contact details of our insurance leaders across the world can be found at the end of this report.
Discover more insurance insights and analysis like this at deloitte.co.uk/Insurance This time is different | Six trends that will determine the future of global non-life reinsurance
Contents
Foreword 02 Executive summary 03 Part one: Future trends 05 Part two: Future scenarios 35 Conclusion 40 Endnotes 41 Contacts 42
01 This time is different | Six trends that will determine the future of global non-life reinsurance
Foreword
The global non-life reinsurance industry has consistently delivered high returns, weathered storms both natural and financial, and innovated the way in which risk is identified, analysed and controlled.
Yet, for an industry built on forecasting In this report Deloitte’s leading reinsurance We would like to thank those who took and preparing for the unexpected, we tend specialists have focussed on developing a part in our research. We look forward to to overestimate the speed and scale at deeper understanding of the trends that your feedback on the report and welcome which we change. Parts of our industry can will most likely shape the industry over the your thoughts on the future of reinsurance be slow to adapt. Major incumbents are next ten years. more broadly. powerful and barriers to entry high. To identify and examine the most However, no one would disagree that some important future trends, we interviewed aspects of reinsurance are profoundly leaders from reinsurers, brokers, capital different from only ten years ago. Most markets players and start-ups. The obviously, since the financial crisis so-called interviews have been supported by market alternative capital has grown from a niche data and case studies. In summary, it is our risk transfer mechanism to comprise view that: almost one-fifth of the industry’s capital. Clive Buesnel • six key trends will be most important to Insurance Leader – UK In addition, the forces of change are the future of global non-life reinsurance stronger than ever. Emerging applications of technology specific to reinsurance, an • these trends will affect the industry’s ever-expanding data universe, reinsurance- structure and economics, the role focussed start-ups and capital markets are of reinsurers and how business is combining to drive change more strongly transacted than in the past. • the industry will be two-speed, with Furthermore, profitability is trending innovators and followers side-by-side down, adding fresh impetus for change. Normalising for natural catastrophes and • industry-level growth and profitability will excluding the impact of reserve releases, remain low by historical standards the industry’s return on equity has fallen in four of the last five years. Even in years • at company level, the gap between top without major catastrophes, return on performers and the rest will widen equity is now little above cost of equity. • pivoting current business models using As a result there is a polarised debate on new technologies will underpin success. the future of global non-life reinsurance. Market participants have widely differing views. Some believe the traditional reinsurance model must change to survive. Others are cynical of disruption and believe the market will evolve along its current lines with the same players dominating for many years to come.
02 This time is different | Six trends that will determine the future of global non-life reinsurance
Executive summary
Future trends The future of the reinsurance industry will be shaped primarily by new technologies, alternative capital, capital markets structuring techniques and reinsurers bundling value-added services with reinsurance. These forces will lead to the six key trends below, adding to the perennial issues of new regulation, changing reinsurance buying patterns and emerging risks.
1. Pivoting to risk transfer plus service 2. Hollowing out of the middle-market model Consolidation will continue among Reinsurers will strengthen their relevance reinsurers and brokers. The epicentre of by pivoting away from providing primary dealmaking will be in the middle market, insurers with capacity, which they need less leading to the emergence of fewer, larger than in the past. Instead, reinsurers will focus on global reinsurers. The strategic rationale for smoothing primary insurers’ earnings, protecting them M&A will be a combination of greater efficiency to defend from the ‘risk of ruin’ and offering them value-added margins, more flexibility to allocate capital across a services. These services will include technology solutions broad range of markets and a wider offering to retain that help primary insurers to optimise their business and key clients. operating models.
3. Ongoing influx of alternative capital 4. Blurring of the value chain’s The market will witness the continuing boundaries influx of alternative capital. It will spread Insurers, brokers and reinsurers have from being tightly focused on property been repositioning themselves within the catastrophe to a broader array of risks, reinsurance value chain to defend, create lowering the cost of capital for the market in or capture greater value. New technologies general and the reinsurers that embrace it, in particular. and InsurTechs are accelerating this blurring of the Reinsurers will continue to develop new business models boundaries in the value chain. At the same time, due to focused on structuring and issuing risk, rather than pricing falling faster than costs, the economics of the retaining it on the balance sheet. value chain have become unsustainable. To address this, incumbents will reshape the value chain based on closer alignment between client needs and their competitive advantages. This will result in three main types of value chain: advice-led, efficiency-led and service-led.
5. Rise of automated placement 6. Rise of exchange-based secondary The reinsurance placement process has markets evolved slowly and acquisition cost ratios Infrastructure providers are building have been rising steadily. Now, however, electronic exchanges to facilitate faster the market is seeing the convergence of and cheaper trading of insurance linked multiple powerful forces that suggest automated securities (ILS). However, these exchanges face reinsurance placement will be increasingly adopted. a number of high barriers, such as slow and infrequent These forces range from new technologies to InsurTechs reporting on losses affecting traded securities and launching in this space to market-modernisation opaque processes for valuing them. Traders will initiatives. Nonetheless, adoption will be gradual, and overcome these barriers, allowing the reinsurers that focused on property catastrophe in the first instance. fully exploit secondary markets to optimise their risk and Automated placement will most benefit distribution capital more dynamically. platforms and alternative capital providers.
03 This time is different | Six trends that will determine the future of global non-life reinsurance
Future scenarios Report structure Our analysis suggests that the greatest This report is divided into two parts. threat of disruption revolves around the Part one examines the future trends degree to which: that will have greatest impact on the reinsurance industry over the next five • alternative capital will back risk to ten years. It analyses the implications of these trends for the market’s size, • technology will enable risk placement profitability and dynamics, and the and trading. barriers that will impede the trends. Part two examines the opportunities and We analysed four future scenarios to threats for reinsurers across four future understand the main opportunities and scenarios, focusing on where disruption threats for reinsurers in more detail. The is most likely. results indicate that these scenarios have widely differing implications. However, what will underpin the success of all the scenarios will be the use of new technologies to pivot current business models. For instance, an evolutionary scenario is where alternative capital remains at its current level and the industry shuns further use of technology for risk placement and trading. Even in this case, which sees the least change of the four scenarios, new technologies will be critical to growth because they will enable a service-based business model with new revenue streams.
04 This time is different | Six trends that will determine the future of global non-life reinsurance
Part one: Future trends
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05 This time is different | Six trends that will determine the future of global non-life reinsurance
Part one: Future trends
Forces behind the future trends Powerful forces are reshaping the reinsurance industry. The most significant over the next ten years will be:
New technology – rapidly-advancing Capital markets structuring – new technologies, such as cloud storage, structuring techniques will enable a wider external data mining and analytics, variety of property catastrophe and other will revolutionise the speed and power risks to be packaged into investable assets. with which risk is identified and analysed. They will also help to overcome the issue of Start-ups will accelerate the adoption of new ‘trapped collateral’ (where investors are unable to technologies and ideas by bringing them to market far recover their principal until losses have been quantified faster than incumbents. They will develop solutions for and these estimates have stopped ‘moving’). This will specific activities, with this so-called ‘modularisation’ encourage a more varied group of investors to invest in making it easier for new players to enter the value chain insurance and reinsurance risks, accelerating the entry and for incumbents to reposition within it. of alternative capital. New platform-based investment intermediaries, such as crowdfunding marketplaces, will provide an additional route for investors to enter the market.
Alternative capital – large pools of capital Bundling – large reinsurers and brokers that are lower-cost than, and alternative will bundle value-added services into their to, reinsurers’ balance sheet capital will core offerings, which will help them to continue to enter the market in search of retain clients and put pressure on smaller, yield and returns uncorrelated with major less-differentiated players. Infrastructure asset classes. This will increase the stock of providers will bundle services into their capital available to back risk and increase profitability platforms, making it easier to set up a reinsurance for players that take advantage of alternative capital. business and thereby increasing competition. With the low-to-negative interest rate environment forecast to remain for longer than previously expected, the search for yield driving alternative capital will not abate soon.
In combination, these forces will manifest in six key trends for the reinsurance industry (see Figure 1). The impact of these trends will be broad, affecting the structure of the industry, its economics, the role of reinsurers and how business is transacted.
06 This time is different | Six trends that will determine the future of global non-life reinsurance
u e 1 e utu e t e d
Rise of exchange-based e o da ma et Emerging
e o automated la eme t
lu o t e alue a bou da e elat e matu t o t e d
Established Ongoing influx of alte at e a tal
ollo out o t e P ot to t a e m ddle ma et lu e e model
Structure of Role of Economics of How reinsurance the industry reinsurers the industry is transacted
o u o t e d
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08 This time is different | Six trends that will determine the future of global non-life reinsurance
1. Pivoting to risk transfer plus service model
Reinsurers will strengthen their relevance The proportion of primary insurance value. Moreover, due to regulations like by pivoting away from providing primary ceded to reinsurers has been steadily Solvency II, which require insurers to have insurers with capacity, which they need falling. Globally, in the past five years the a more granular view of risk, enterprise less than in the past. Instead, reinsurers non-life cession rate has fallen by 5 per risk management among primary insurers will focus on smoothing primary insurers’ cent per year, hitting 7.5 per cent in 2018 has evolved. This is enabling them to take earnings, protecting them from the ‘risk (see Figure 2). Historically cession rates a more selective approach to cessions. Put of ruin’ and offering them value-added were much higher. For instance, for the US simply, primary insurers have less need to services, such as technology solutions, Property and Casualty (P&C) industry, the access capacity than in the past. This, in to optimise their business and operating cession rate fluctuated between 19 per turn, has prompted some to question the models. This will be driven by the changing cent and 21 per cent in the 2000s.1 relevance of reinsurers providing capacity needs of primary insurers as they via quota share arrangements. become larger, better-capitalised and One of the key reasons that primary more sophisticated at managing risk. The insurers have been ceding less risk is their resulting shift will particularly benefit large, increasing size and capitalisation. This has “The person who diversified reinsurers that are best placed provided them with the ability to retain to act as full-service providers. more risk and, ultimately, to capture more won’t survive is the person providing u e 2 Global e o ate capacity only,
CAGR -5% -1% 9% the last 3–5% 8.5%
7.7% 7.7% on the slip.” 7.6% 7.6% 7.5%
CFO, Bermudian reinsurer
Reinsurers will strengthen their relevance by focusing on three key roles:
• protecting primary insurers from earnings volatility and the ‘risk of ruin’ 2.7% 2.7% 2.6% 2.5% 2.6% • providing them with a combination of capacity, risk transfer and expertise to assist expansion in new business lines and territories
2014 2015 2016 2017 2018 • offering them value-added services.
Non-life Life Note: Excludes the alternative capital sector Source: Swiss Re
09 This time is different | Six trends that will determine the future of global non-life reinsurance
cyber insurers need reinsurance to manage for reinsurers to underwrite due to a lack “In the future the their exposure to very large and uncertain of historical data on losses. Cyber-attacks, losses, such as attacks on the energy for example, have a short history relative model is more system or Cloud infrastructure. The future to losses in more established lines. In of capacity provision is, therefore, dependent addition, experience data can be patchy likely to be service on its context, with our interviewees arguing because losses are often opaque and that it will continue to be required, but unreported. Other major emerging risks 90% and risk- more within the context of a broader range with a dearth of experience data include of services than on a standalone basis. nanotechnology, genetically modified taking or balance crops and climate change.4 That said, the Representing the biggest shift from IoT presents a clear opportunity to source sheet provision today, reinsurers will continue reinventing more and better data on emerging (and themselves by providing value-adding traditional) risks. Machine learning can help only 10%.” services to primary insurers and end- with identifying patterns and correlations customers. These services will include in data with which to underwrite. Chairman, global reinsurer technology solutions that help primary companies to optimise their business Barriers to reinsurance in fast-growing Reinsurers will focus even more on and operating models. One of our emerging markets include political risk, protecting primary companies from interviewees highlighted machine learning protectionism and poor profitability in the ‘risk of ruin’ and earnings volatility, to improve the accuracy and speed of certain lines of business and countries. which is typically achieved through underwriting and claims processes as a Our interviewees were circumspect on the non-proportional reinsurance. Volatility case in point. Reinsurers will also provide potential for foreign reinsurers to achieve in results and very large losses are proactive risk management based on the profitable growth in emerging markets. increasing threats, assuming that natural Internet of Things (IoT) and insurance catastrophes become more costly due to embedded within commercial and Players from the technology sector exposure growth (e.g. due to urbanisation industrial processes. have the potential to disrupt reinsurers’ and rising middle classes) and more value-added services. Some of them have frequent and more severe catastrophes Barriers to change both big data sets and deep expertise (e.g. due to climate change). In 2017 the One of the main impediments to growing cost of natural catastrophes in the US the market for reinsurance of emerging broke records with the cumulative cost of or new risks, such as those faced by fast Case study: billion-dollar-plus events reaching $306.2 growing, platform-based technology Reinsurer billion, 43 per cent above the previous businesses, is that the penetration of deploying the record of $214.8 billion in 2005, the year primary insurance in these risk pools is service model Hurricane Katrina wreaked havoc on often low. The challenge, in many cases, MHP, KUKA and Louisiana.2 In addition, due to investor centres on how to persuade the holders Munich Re have developed pressure, primary insurers are increasingly of risk to buy more insurance. This is SmartFactory as a Service for wary of missing earnings targets. As a exacerbated by a product set that has automotive manufacturers. KUKA result, many are moving (or have moved) not always kept pace with the evolution of develops the robot-based reinsurance purchasing strategy to risk and a focus among primary insurers automated plant; MHP provides metrics such as return on equity and on in-force, rather than new, business. To its digitalisation expertise, economic capital, which are optimal for overcome this challenge, reinsurers have including consultancy on the managing volatility.3 important roles to play in areas such as closed-loop manufacturing shifting mindsets towards innovation, new approach throughout the project Reinsurers will enable primary companies product development and supporting phase, and delivers systems to expand in new lines of business and in the insurance industry’s efforts to integration. Munich Re provides high-growth regions. One example cited by communicate its value proposition to a integrated risk management and our interviewees was cyber risk. In this line new generation of potential customers financing. Munich Re claims the of business, there is a growing need for and clients. service can shorten new products’ insurers to access a combination of time to market by up to 30%. reinsurers’ capacity and their expertise When supporting primary insurers to (e.g. in underwriting and claims). In addition, expand into new lines, it may be challenging
10 This time is different | Six trends that will determine the future of global non-life reinsurance
in artificial intelligence. This combination non-proportional pricing in recent years.8 captured by the largest reinsurers over gives them an advantageous position from It is unclear whether increasing volatility of the past decade. Our interviewees argued which to provide services that predict and loss events will lead to a sufficient uptick in that primary insurers will increasingly prevent risk to primary insurers and end- demand for reinsurance and/or a reduction seek broad partnerships with the select customers. Google is reportedly developing in capital to push up pricing and returns. reinsurers capable of offering them. an AI system to predict the aftershocks of The profitability of supporting primary We observe a similar trend in other an earthquake.5 insurers’ expansion into growth lines and B2B financial services. For example, in regions is dependent on the business in institutional asset management, investors Impact on market size question. Certain emerging risks are highly want partnerships to achieve economies Pivoting the role of reinsurers is unlikely profitable, for example the estimated loss of scope across multiple asset classes, to translate into strong growth in revenue. ratios for US cyber insurance in 2015, 2016 bespoke solutions and a two-way exchange In many emerging markets, insurance and 2017 were 41.5 per cent, 47.6 per cent of IP across organisations. 9 penetration will likely remain low due to its and 32.4 per cent respectively. The shift perceived unaffordability. Total economic to providing more value-added services That said, there will always be a role losses from disasters increased by 9 per will be positive for profitability. New for small, deep specialists and nimble cent per year between 2014 and 2018. technology-based services will be asset- underwriters. Several of our interviewees In contrast, total non-life reinsurance light and highly specialised, which implies a commented that, analogous to the world premiums fell by 1.3 per cent per year.6 high return on capital. of active asset management, some Emerging risks are growing strongly but underwriters are capable of consistently from a very low base. For example, cyber beating the market. These people will represents less than 3 per cent of total “We reinsure a always be in high demand and some may reinsurance premiums.7 The market for gravitate to new boutiques where pay value-added services is nascent and its client on a big and prospects are better than at more future size is difficult to predict. Overall, traditional players. the equity market’s perception of the quota share and reinsurance sector’s low growth prospects is summarised by its low price-to-book see this as a “Specialist ratio relative to that of the insurance sector. partnership – we reinsurers will Figure 3. Price-to-book ratios, January 2019 are supporting survive because
Reinsurers 1.08 this client as a they have IP.”
partner, providing CFO, Bermudian reinsurer Insurers 1.80
capital, knowledge, To build service offerings, we expect major 3.97 Brokers reinsurers will increasingly collaborate expertise etc.” with large technology firms that have Source: Bloomberg relevant and hard to source expertise. Head of Casualty Underwriting, Witness the Munich Re collaboration with global reinsurer Impact on market profitability IBM to provide cyber services and the 10 The impact on profitability will be mixed. Swiss Re-Tencent collaboration on AI. All other factors being equal, a shift away Impact on market dynamics This will further advantage large players from capacity provision (i.e. proportional The changing role of reinsurers will be over small reinsurers that are unable to reinsurance) towards capping volatility positive for large, diversified reinsurers provide the same level of access to clients (i.e. non-proportional reinsurance) should capable of offering a full suite of products and prospects. have a positive impact on profitability and services, from plain vanilla reinsurance because the latter is higher risk and through to highly bespoke capital solutions higher return. However, in practice, the and value-added services. This view is market has experienced unattractive supported by the increasing market share
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12 This time is different | Six trends that will determine the future of global non-life reinsurance
2. Hollowing out of the middle-market
Consolidation will continue among reinsurers insurers buying reinsurers. For some, this is ten years. Absent major events, downward and brokers. This will hollow out the a way to diversify into specialist lines of pressure on reinsurance pricing will remain middle-market and lead to the emergence business that are less prone to strong due to an ongoing abundance of of fewer, larger global reinsurers. The commoditisation than personal lines (e.g. capital. For example, following record strategic rationale for M&A will be a AXA-XL and AIG-Validus). On the broking catastrophe-hit insured losses in 2017, combination of greater efficiency to defend side, Marsh’s acquisition of JLT was, in part, global reinsurance capital fell only two per margins, more flexibility to allocate capital motivated by the intention to build a cent.12 In addition, the market is across a broad range of markets, and a full-service provider, extending the fragmented. In non-life reinsurance, there wider product/service offering to cement combined entity’s reach in reinsurance by are five big reinsurers that each underwrite key client relationships. Primary insurers combining Guy Carpenter and JLT Re. approximately $13 billion or more in gross will also accelerate consolidation by premiums. However, combined these continuing to rationalise their reinsurer panels. The consolidation trend will continue. Debt players capture less than half of the market finance is projected to remain relatively compared with 70 per cent for the five The market is witnessing ongoing cheap by historical standards over the next biggest players on the life side (see Figure 4). consolidation among reinsurers and reinsurance brokers. Starting in 2015, both the number and value of M&A transactions u e 4 201 lobal e u a e ma et a e b e o e u e increased sharply on the early 2010s. In each year in the period from 2015 to 2018, 2017 gross non-life deals worth more than $20 billion in premium written by player aggregate closed.11 Notable examples of 4% this trend include AXA’S purchase of XL ($15 billion) in 2018, AIG’s purchase of Validus ($6 billion) in the same year and 34% 26% Fairfax’s acquisition of Allied World in 2017 $4.5bn for $5 billion. On the broking side, Marsh acquired JLT ($6 billion) in 2018. More recently, SCOR-Covea, SCOR-Partner Re and Aon-Willis Towers Watson tie-ups have 17% $5bn–$7bn been mooted.
Reinsures are engaging in M&A for a variety of reasons. Some of these apply across the 70% sector as a whole, others are company-specific. At the sector level, the 49% main drivers are building scale to increase $13bn–$21bn efficiency and mitigate soft pricing, owning the entire value chain, acquiring specific pockets of expertise (e.g. Markel buying Nephilla to access alternative capital expertise), and diversifying by line of Non-life Life business and geography to build broader portfolios and increase capital efficiency. 1 to 5 to 1 Rest One aspect of increasing M&A is primary Note: Based on the top 5 reinsurers Source: A Best Deloitte analysis
13 This time is different | Six trends that will determine the future of global non-life reinsurance
Consolidation will be accelerated by so- u e 5 e u e etu o e u t called panel rationalisation. In other words, multinational primary insurers will continue 5% aligning to a smaller set of reinsurers that have broad product suites, deep expertise and strong capitalisation. These primary % insurers want access to reinsurers that can service their needs in all lines of business at both group and subsidiary levels. One of the key trends underlying panel 15% rationalisation is ongoing M&A activity among insurers.
The middle-market will be the epicentre 1 % of dealmaking. Players in this segment (i.e. smaller than the top five but larger than small specialists focused on particular niches) will use M&A as a means of 5% acquiring the scale, diversification and breadth of services that will be required to compete amid market conditions that are forecast to remain challenging over the % long term. Analysis of returns on equity 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 shows that for the market as a whole Big 5 Others Cost of e uity returns have been falling. However, the biggest reinsurers have defended their Note: The ‘Big 5 (non-life) reinsurers include Hannover Re, unich Re, Swiss Re, Berkshire Hathaway and Lloyd s ‘Others include 1 ma or reinsurers profitability more so than smaller rivals, Source: Bloomberg Deloitte analysis outperforming them in four out of the five most recent years (see Figure 5). have a material impact on the market’s size Impact on market dynamics as measured by premiums. One argument Large players will tighten their grip Barriers to change for M&A being supportive of growth is that on premiums as the middle-market There are significant risks and costs large players can afford to spend more on consolidates. Brokers will look to deepen attached to M&A and these will slow innovation (in absolute terms) than smaller their relationships with clients to its progress by halting a number players. Swiss Re, for instance, points to the counteract the shifting balance of power of proposed transactions. More role that product innovation is playing in its in favour of larger reinsurers. Small players fundamentally, reinsures need to spread growth and reportedly has a $250 million will have a role as specialists, but the risk among multiple parties to reduce its annual budget for R&D in risk modelling.14 successful among them will be bolt-on concentration. Unlike in other markets acquisition targets. Given the importance where network effects are more powerful, Impact on market profitability of diversification, the business model such as online retail, a reinsurance market Consolidation will be positive for of pure-play reinsurers will come into with a single, very large provider would not profitability. Large players are better able question. make sense. This is particularly true of non- to defend margins than smaller players life reinsurance because it is more volatile due to greater scale and diversification. than life reinsurance. However, whether this will be enough to arrest the downward trend in profitability Impact on market size experienced by the reinsurance industry as Transactions will withdraw pockets a whole, including the biggest reinsurers, is of capital from the market and shrink a bigger and unanswered question. headcounts. For instance, AIG’s purchase of Validus and AXA’s purchase of XL-Catlin withdrew capital of $13.7 billion in 2018.13 However, it is unlikely that transactions will
14 This time is different | Six trends that will determine the future of global non-life reinsurance
“The small focused reinsurers have done well in an evolving and fast-changing market. In the future, there will continue to be 4-5 big players, but I also think you’ll see a stronger position among reinsurers 5-15. It’s not just about scale, and I don’t think we’ll end up with just a few big players.”
CFO, Bermudian reinsurer
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16 This time is different | Six trends that will determine the future of global non-life reinsurance
3. Ongoing influx of alternative capital
The market will witness the continuing u e e u a e a tal b ou e b ll o influx of alternative capital. It will spread from being tightly-focused on property 7 catastrophe to a broader array of risks, lowering the cost of capital for the market in general and for the reinsurers that embrace it, in particular. This will be driven by continued investor demand for the low- 5 correlation returns that alternative capital offers, increasing transparency into risk and innovative new investment structures. 4 Alternative capital will moderate growth in premiums. Reinsurers will continue developing new business models, focused 3 on structuring and issuing risk, rather than retaining it on the balance sheet.
Alternative capital has been steadily increasing its share of overall reinsurance 1 capital in recent years.15 Having outpaced the growth of reinsurers’ balance sheet capital, alternative capital represented just under a fifth (17 per cent) of overall capital 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 in 2018 (see Figure 6). Following record losses in 2017, in 2018 alternative capital 2006-18 CAGR 2018 Share grew at 9 per cent while traditional capital Reinsurer balance sheet 2% 83% fell by 5 per cent, indicating commitment Alternative 16% 17% on the part of alternative capital investors. Source: Aon Deloitte analysis
The consensus view among market participants, which was echoed by our linked-securities or ILS as of 2018).16 More important than continued growth, interviewees, is that alternative capital Second, the supply of risk to alternative alternative capital will undergo the will remain a permanent feature of the capital structures will increase. More following key developments. reinsurance market, although its growth primary insurers and reinsurers will will likely moderate. embrace a hybrid earnings model that New structures and deeper reinsurer- combines underwriting returns (from investor partnerships will proliferate. Future growth will be supported by three retaining risk on the balance sheet) with New structures will facilitate the entry of main factors. First, demand for returns fees (for sharing risk with alternative a broader range of institutional investors, largely uncorrelated with major asset capital sources). Third, regulators will who are looking for more bespoke ways classes among institutional investors will support innovation in the alternative to invest in reinsurance. This will not grow: more investors will recognise the capital space (e.g. the new collateralised only increase the supply of alternative benefits of reinsurance risk as a diversifying reinsurer class proposed by the Bermuda capital, but also offer opportunities for asset (only one per cent of European Monetary Authority). deep partnerships between reinsurers pension funds had exposure to insurance- and investors.
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“Alternative capital A new type of alternative capital Case study: manager will emerge. At present, is definitely here to Innovation in ILS reinsurers that also manage alternative structuring capital are primarily funded by their own stay, despite some In January 2019, in balance sheets. Our interviewees argued a move away from that in future we will see the emergence challenges from property catastrophe of reinsurers that are primarily funded by risk, Ledger Investing completed alternative sources, more akin to an asset recent losses its first transaction, directly manager than a reinsurance company, securitising a portfolio of ‘picking risks like stocks’. These players will creating trapped non-standard passenger auto be agnostic to the source of capital that insurance between a Managing backs the risk they underwrite. This will capital and not General Agent and the AIG- allow them to match risk with the most owned ILS fund manager appropriate source of capital (based on its being able to reload.” AlphaCat. One of the innovative risk appetite and cost) more effectively. features was the funding model. The investor received variable Growth in the share of alternative Head of Casualty Underwriting, rate principal-at-risk notes. capital will help the industry to finance global reinsurer The funding of these notes (i.e. risk at a lower cost. Alternative capital the principal) is also variable. is typically lower cost than reinsurance Investors will allocate more capital This allows for flexible capital balance sheet capital (see Figure 7). This to non-catastrophe risks. To date contributions, which are designed is driven by the low correlation between alternative capital has focused on to match closely any increase in alternative capital investments (e.g. catastrophe risk. This is largely because risk as the underlying insurance catastrophe bonds) and the equity market. it offers an attractive risk-return profile, portfolio grows. This was reliant In addition, alternative capital managers has a short duration and is relatively on Ledger providing automated, have very low operational overheads. For transparent (i.e. well-modelled and well daily updates of premium, instance, Leadenhall Capital, which is a understood). By one estimate, up to half of exposure and loss metrics to standalone ILS fund manager, commands the capital backing catastrophes worldwide allow investors to develop a $27 million in premiums per employee. For is provided by sources alternative to view on performance and trade Munich Re, it is $1.5 million in premiums 18 reinsurers’ balance sheets, compared with the securities. per employee. 17 per cent of reinsurance capital overall (see Figure 6).17
Transparency in pricing and valuation of “We’re focused on how to model risk non-catastrophe risk is increasing and this will likely lead to more securitisation. better to make risk more transparent. A number of market participants are seeking to increase the transparency of This is what has happened on the credit non-catastrophe risk by modelling it in more advanced ways than in the past side, where risk transparency was (e.g. using machine learning on big data sets). This, argued one of the interviewees, increased due to account-level credit is comparable to developments in credit markets: risk transparency was scoring (like FICO) and portfolio-level increased due to the introduction of FICO credit scores (which measure stochastic models, and this accelerated the creditworthiness of an individual) and advanced risk models. These securitisation.” developments increased risk transparency and ultimately helped to drive up CEO & Founder, ILS InsurTech securitisation, for example in mortgages.
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Growth in the share of alternative capital will help the industry to finance “You will still need someone to do the risk at a lower cost. Alternative capital is typically lower cost than reinsurance middle part of the value chain – the balance sheet capital (see Figure 7). This is driven by the low correlation between selection and pricing of risks, the guts of alternative capital investments (e.g. catastrophe bonds) and the equity market. reinsurance – but third-party capital may In addition, alternative capital managers have very low operational overheads. For pay you for that.” instance, Leadenhall Capital, which is a standalone ILS fund manager, commands CFO, Bermudian reinsurer $27 million in premiums per employee. For Munich Re, it is $1.5 million in premiums per employee.18 “The division of insurance and reinsurance Depending on the extent to which alternative capital grows, it will reduce will go away – instead the approach the industry’s overall cost of capital. For the industry as a whole, this is significant should be: I’m holding risk, where can I because returns have been falling (even after excluding the impact of natural source the cheapest capital to back that catastrophes) and are now little above the cost of capital. For individual reinsurers, risk and how can I access it directly.” with greater freedom of manoeuvre than the market as a whole, alternative capital CEO & Founder, ILS InsurTech represents an even greater opportunity to boost returns. Case study: Figure 7. Illustrative cost of reinsurance balance sheet capital Strategic reinsurer- Reinsurer Alternative capital alternative capital investor partnership Risk-free return 2% 2% Vermeer Re, which Market return 10% 10% launched for the January 2019 reinsurance renewals, is RenRe’s Beta factor 0.8 0.10 first managed rated reinsurance Cost of equity 8% 3% vehicle for a single pension fund investor, Dutch pension fund PGGM. Vermeer Re targets risk-remote Cost of debt 3% N/A layers of US property catastrophe reinsurance programmes. Vermeer Re is believed to have a low cost of Share of equity 80% N/A capital relative to the cost of Share of debt (leverage ratio) 20% N/A reinsurance balance sheet capital. RenRe claims that this, combined with PGGM’s focus on fees and Cost of capital 7% 3% costs, means that Vermeer Re can have a lower hurdle rate for underwriters than other forms Source: Aon, Artemis, Bloomberg, Deloitte analysis of capital.
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Barriers to change The future growth of alternative capital will “Some big reinsurers will never go down not be linear. Large reinsurers, which command half of the market’s premium the route of using other people’s capital (see Figure 4), may, as one of our interviewees suggested, face pressure from shareholders because they have such large equity to service their balance sheets with risk to balance sheets to service. Once you’ve got maintain steadily growing dividends. that many shareholders, you are beholden Absent innovation in data, technology and structuring techniques, many types of risk to them and it’s really hard to downsize outside property catastrophe will be too opaque and/or too long in duration for your balance sheet, no matter how much mainstream capital markets investors. Key innovations that would address these equity you buy back.” issues include ways to reduce the burden of so-called trapped collateral (i.e. capital Alternative capital SME trapped within investments that cannot be released until liabilities have been met once Impact on market size cost of capital and additional fee income. insured losses have been quantified) and The ongoing entry of alternative capital will On the other hand, for reinsurers that do standardisation of risk (e.g. the creation of depress premium growth in the long term. not, more plentiful capital will hold down widely recognised and understood units of To date alternative capital has focused on pricing. The impact of alternative capital’s risk). Investors also need to see faster and risks underwritten by reinsurers. However, entry can be seen in the dampening of more frequent reporting of positions, in future the market will likely see a greater the market cycle. Not only has the cycle which would help to engender greater faith proportion of risks passed directly from reduced in amplitude, but prices have also in the valuation measures. primary insurers and even corporates to been trending downward over the long third-party investors. This offers the term. Since 1990, the property catastrophe Many buyers will want access to more than potential for fewer steps and, therefore, reinsurance price index has fallen from a capital. Most obviously, buyers expanding less cost in the process of matching risk to high of 386 in 1993 post 1992’s Hurricane into new lines will seek the level of service, capital. Nonetheless, the extent to which Andrew, to 188 in 2018.19 In addition, underwriting expertise and skill that is most this will grow is unclear, given its early stage some argue that the impact of the entry readily available in addition to capital at of development and the costs of of alternative capital can be seen in the global reinsurers. We see this in the trend securitisation, even after stripping out a divergence between trends in insurance for primary insurers to purchase cyber layer of intermediation, can be prohibitive. and reinsurance pricing, with the former reinsurance bundled with risk management displaying more obvious signs of hardening services. One of our interviewees bluntly Impact on market profitability in recent years. stated that ILS are not so relevant to many Reinsurers that embrace alternative capital buyers. will see higher margins through a lower Impact on market dynamics The most efficient reinsurers will benefit. Lower pricing from more alternative plus “After some setbacks in the past two years traditional capital will put pressure on with some bonds getting pulled, I believe profitability and, in turn, drive up the need for more efficiency (i.e. lower expense ratios). that alternative risk transfer and insurance A flatter reinsurance cycle will ultimately be a positive force. Less volatility in prices will linked securities will continue to grow but continue to create an environment where reinsurers innovate to improve not dramatically. The market is still very performance rather than ‘waiting for a big hurricane’. A small number of reinsurers small and not so relevant for most buyers.” will focus on matching risk with alternative capital sources, rather than reinsuring it, with Chairman, global reinsurer this becoming their main business model.
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“The frictional costs are still a major issue when it comes to encouraging someone like a corporate to issue a catastrophe bond.”
Alternative capital SME
“The cycle will not come back as we used to see it. Maybe it will in a much less volatile way than in the past, but the ongoing professionalisation of the industry will smooth any cycle.”
Chairman, global reinsurer
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4. Blurring of the value chain’s boundaries
Insurers, brokers and reinsurers have business, Corporate Solutions, to 11 per groups that own sizable primary insurance been repositioning themselves within cent of group premiums in 2018; Munich companies. Of the top ten reinsurers by the reinsurance value chain to defend, Re is approaching an even split between 2017 premiums, only Reinsurance Group create or capture greater value. New primary insurance and reinsurance and of America, a life and health specialist, technology and InsurTechs are accelerating Berkshire Hathaway has propelled Geico and state-backed General Insurance this blurring of the boundaries in the to be a leading auto insurer. Corporation of India Re are pure- value chain. At the same time, due to play reinsurers. pricing falling faster than costs, the • Meanwhile, brokers have moved up economics of the value chain have become the value chain into underwriting New technology is making it easier to enter unsustainable. To address this, incumbents through vehicles such as Managing the value chain and to reposition within will reshape the value chain based on General Agents, line-slips, binders and it. The market is witnessing advances in closer alignment between client needs broker facilities, and down into client technology, coupled with a proliferation and their competitive advantages. This will facing services such as data provision, of start-ups developing solutions for result in three main types of value chain: data analytics and consultancy. specific reinsurance activities. This so- advice-led, efficiency-led and service-led. A regulatory study found that 15 out called modularisation is making it easier These shifts will particularly benefit global of 73 brokers in the London-based for incumbents and new entrants to buy, brokers, full-service global reinsurers and commercial insurance market provided rent or outsource activities within the composites that own and exploit the entire such services, accounting for 8% of their reinsurance value chain. One example is risk-to-capital chain. 2016 revenue.21 underwriting. Analyze Re, a 2013 start- up, has developed a SaaS platform that In recent years the three main constituents One manifestation of this trend is that provides real-time reinsurance analytics. of the reinsurance value chain – insurers, few of the world’s largest reinsurance It is designed to help optimise reinsurers’ reinsurers and brokers – have been groups underwrite solely reinsurance, pricing and portfolio management.22 repositioning themselves to defend, create the ‘pure-play’ model. Most are part of or capture greater value:
• Insurers have moved into “If you can demonstrate the value you reinsurance largely through acquisitions to build scale and diversify. bring to the chain and capture it, then For instance, AXA acquired XL-Catlin in 2018 citing, among other factors, I think you’ve got a long and prestigious enhanced capital diversification (30 per cent reduction to XL’s Solvency Capital future in the industry. But if you can’t Requirement), access to alternative capital and the creation of the largest nail down what it is you bring or can’t player in global P&C Commercial Lines.20 monetise the IP in your organisation, • Reinsurers have been growing their primary companies both organically then I think you could get disrupted at and via M&A to gain more direct access to risk, build end-client relationships and the moment.” ultimately unlock key sources of growth. Among the largest three reinsurance Alternative capital SME groups, Swiss Re has grown its insurance
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Figure 8. Reinsurance subset companies’ underwriting profitability excluding the Nonetheless, at the reinsurance industry impact of natural catastrophes and reserve releases level, the economics of the value chain are deteriorating. Due to pricing falling faster than costs, customers and suppliers are 2013 31.2% 60.5% 8.3% capturing an increasing share of value (see Figure 8). The industry’s core underwriting profit margin (i.e. excluding the impact 2014 32.1% 61.4% 6.5% of natural catastrophes, which are highly volatile, and reserve releases, which smooth results from year to year) has fallen 2015 33.1% 61.4% 5.5% from 8.3 per cent to 4.7 per cent in the five years from 2013 to 2018. This was driven equally by a 1.8 percentage point increase
2016 33.2% 61.3% 5.5% in both the expense ratio and the loss ratio (see Figure 9).
2017 32.8% 61.8% 5.4% Many market participants expect the structure of the value chain to shift dramatically over the next ten years. Our interviewees unanimously shared this 2018 33.0% 62.3% 4.7% belief. However, they had widely differing views on how the chain will be reshaped,
Expense ratio Loss ratio ex nat cats and reserve releases Underwriting profit margin and by whom. Some argued that reinsurers Note: subset companies include 1 ma or reinsurers would ultimately own the chain, providing a Source: Willis Re more direct and, therefore, cost-effective route from risk to capital; others foresaw a broader role for global brokers, using their Figure 9. Reinsurance subset companies’ underwriting profitability excluding the data to cement relationships with clients, impact of natural catastrophes and reserve releases, 2013 vs 2018 as trusted advisers.
Three distinct forms of value chain will emerge as insurers, brokers and reinsurers 4% seek to defend their profitability (see Figure 10). These will be based on a stronger alignment between specific client needs and -1.8% 26% those best placed to service those needs.
Advice-led. Primary insurers will continue -1.8% to need advice on structuring a risk transfer programme, which is typically 3.6 percentage point reduction in not their core competence. Global 8.3% underwriting pro t margin from 2013 – brokers are in the strongest position to 2018 equally driven by a 1.8 percentage point deterioration (increase) in the provide it. They have access to multiple expense and loss ratios 4.7% competing reinsurers, investment banking capabilities to advise on alternative capital structures, and deep insight on how and where to place reinsurance, based on proprietary data.
2013 Expense ratio impact Loss ratio impact 2018 Large corporates will increasingly need advice on risk management, encompassing Note: subset companies include 1 ma or reinsurers Source: Willis Re both insurance and other mechanisms for
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risk control (e.g. post-incident organisational Figure 10. Emerging reinsurance value chains response). This will be influenced by the ongoing shift in the global economy from Type of value Value chain Leader’s Target clients Client need value creation through tangible assets, chain leader competitive which are relatively easy to insure, to advantage intangible assets (e.g. software, networks and Advice-led Global broker • Data • Primary • Advice on data), which are harder to insure. The share • Analytics insurers risk transfer of the S&P 500’s total value accounted for • Consulting • Large • Advice by intangible assets has grown from 17 per • Access to corporates on risk cent in 1975 to an astonishing 84 per cent reinsurers management in 2015, according to one study.23 Global brokers are well-placed to provide this Efficiency-led Insurance-to- • Size • Retail / SME • Capital and advice. They have a combination of risk reinsurance • Access to insurers operational insight based on big data sets, analytics group risk • Composite efficiency capabilities and consulting skills. • B2C insurance capability and reinsurance “Value chains have groups Service-led Global • Balance • Primary • Risk, to collapse. That’s reinsurer sheet insurers capital and • Risk with more business why technology expertise complex optimisation • Technology needs needs to take • Solutions • Large a much bigger corporates Note: This excludes value chains based on protectionism. role. Look at how Source: Deloitte analysis
much is absorbed steady rise of online insurance purchasing partnership. They have the full product and the associated rise of price sensitivity suite and deep risk knowledge and in expenses.” among retail and small to mid-sized expertise. This positon is supported by commercial customers. This pressure will considerable ongoing investments in R&D. Head of Casualty Underwriting, see insurance-to-reinsurance groups build In the past five years, some have also global reinsurer highly integrated full risk-to-capital value forged ahead in technology capabilities and chains to drive efficiency (including selling developed connections among the One example of this trend is the growing directly to customers and using companies InsurTech community, which they are need for advice on captive insurers. within the same group for reinsurance). monetising by selling a bundle of Large corporates with technology-based reinsurance-plus services to insurers. business models, including autonomous Service-led. Primary insurers have car manufacturers and sharing economy increasingly complex needs of reinsurers. Barriers to change platforms, are increasingly looking to These range from plain vanilla quote shares The principal barriers to the development captives as a risk management tool (i.e. reinsurance arrangements whereby of these value chains are competition to maximise cost savings, control and premiums and claims are shared between between incumbents and a potential privacy. Global brokers are leading insurer and reinsurer according to regulatory backlash. Global reinsurers and the development of captives for these pre-agreed proportions or quotas) to highly global brokers to some extent provide the emerging sectors of the economy. bespoke capital solutions based on a same services to the same client base. For granular risk insight. In addition, insurers instance, both provide analytics to primary Efficiency-led. For primary insurers, the are constantly looking to optimise their insurers. They will likely compete in these need to access the most cost-effective business and operating models. Only overlapping areas, and this may impede sources of reinsurance will increase. Among full-service global reinsurers are able to the development of an advice-led chain as other factors, this will be driven by the cater to these needs, via a single, deep distinct from a service-led chain.
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Similarly, reinsurers may seek to block Impact on market dynamics the development of an efficiency-led, fully Case study: Group Global brokers, full-service global integrated end-to-end value chain as this owning full reinsurers and groups comprising cannibalises their offering, i.e. external risk-to-capital insurers and reinsurers (i.e. composites) reinsurance. Regulators may prevent such value chain that exploit the entire value chain are a value chain on account of it being anti- In February 2019, particularly well placed for the future. They competitive. Agents and brokers would Berkshire Hathaway have a compelling position from which to not stand by and let a primary company launched THREE, a digital-first redefine the value chain, based on stronger disintermediate them. insurer with a simple three-page alignment between client needs and their small business policy developed competitive advantages. On the other Impact on market size to be easy to understand. It is hand, those who cannot demonstrate The development of these three value primarily sold directly via its own and monetise the value they bring to the chains would have opposing influences on website and covers business chain will ultimately be forced to reinvent growth in premiums. A service-led chain liability, business interruption, themselves or face an uncertain future. would continue to fuel growth. cyber, workers’ compensation, We believe that the market will see the For example, this type of value chain would property and assets, and continuing emergence of all three types see reinsurers support growth in primary of value chain. However, the efficiency-led insurance through product innovation business auto. Because the chain will likely be the fastest to develop. and in other, less well-known ways, such policy is sold directly by a group This is because large composite groups can as services that improve the insurance including a major reinsurer, assemble an efficiency-led chain relatively customer and intermediary experience. Gen Re, this is an important quickly through M&A. In contrast, the Similarly, an advice-led chain would drive new example of a composite owning the entire risk-to- advice-led and service-led chains would capital value chain, offering the require organic growth, which would potential for material savings take longer. Case study: on brokerage and reinsurance Reinsurer through rationalisation of links in deploying the chain. “I don’t think the technology service-led model value chain will Swiss Re provides machine growth in consulting revenue. On the other learning services such as: hand, an efficiency-led chain would likely be decomposed. shrink premiums in the lines to which it ADAPT is a scalable platform that applied. A highly efficient value chain with it’s more like the uses machine learning to automate low distribution costs would likely support repetitive document processing lower yet risk-adequate prices in the long model morphs into tasks such as claims processing, term, (but would need significant marketing contract intelligence gathering and spend, as per the growth of direct channels a multi-purpose submissions processing in US auto insurance, in the short term). company and Insights Re is a document Impact on market profitability enrichment platform powered by Reshaping the value chain to focus more you will need to semantic search and AI closely on client needs and the competitive capabilities, which enables advantages of the players within the chain be a large, multi- document intelligence would be positive for profitability. The (classification, summarisation and advice-led chain would be high-margin, faceted business search) and information retrieval due to a combination of highly specialised services and an asset-light operating to do that. Pythia is a scalable platform, model. The efficiency-led chain would which enables data models and strip out frictional costs. The service-led Country CEO, global reinsurer visualisations, for predictive chain would likely boost margins through modelling increased client loyalty and ancillary income from services.
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5. Rise of automated placement
The traditional reinsurance placement u e 11 T al la eme t l e le o a e u a e t eat ma et process has been to slow to evolve and acquisition cost ratios have been rising steadily. The market is now seeing the convergence of multiple powerful forces Data e ue t that suggest automated reinsurance to ede t placement be adopted. These forces a te a e A al o range from new technology to InsurTechs e al a e ta e e o u e launching in this space to market t aud t e e e e modernisation initiatives. Nonetheless, et adoption will be gradual and narrowly focused on property catastrophe in the first instance. Distribution platforms and A al o Confirmation alternative capital providers have the most e u a e to ede t to benefit from automated placement. t u tu e
The reinsurance placement process has evolved slowly, and is now considered by some to be unduly complex, slow and expensive in contrast to the way in which ele t o o l e other financial products are bought and ma et and finalise sold. The traditional process includes ma et o t a t discovering reinsurance prices, agreeing t contract terms and conditions, and allocating limits among several reinsurers. It involves in-person meetings, numerous ubm o to D t bute T steps and multiple handovers (see Figure e u e a d olle t 11). This creates inefficiency and opacity. In o t a t aut o at o contrast, in government debt markets, for aluate o d example, the process for issuing securities uote is relatively quick and low cost due to the de elo T use of automated, digital auction systems and standardised contracts.
For the first time, the market is experiencing the convergence of powerful, Note: FOT stands for Firm Order Terms. Green circle is the start point. Source: Insurance Accounting and Systems Association varied drivers of automation in reinsurance placing. Expense ratios have been rising on an unsustainable trend. The technology to automate complex processes that require intermediation by trusted parties has leapt forward in the past five years. Most obviously, blockchain provides a mechanism by which to issue and execute
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smart (i.e. automated) contracts. In the Lloyd’s market, electronic placement has “A number of players, especially [those been mandated with rising targets for the proportion of risk to be placed via a involved in] certain reinsurance deals like recognised electronic placement system (50 per cent in Q2 2019).24 Reinsurance will capital solutions, are not interested in be added to this initiative. Furthermore, start-ups are entering this space. In 2018 total transparency and will stay with Tremor completed the first programmatic bespoke solutions. I doubt that there is auction (i.e. based on blind bids) of reinsurance in a commercial environment.25 enough trust to deal via a platform, although natural catastrophe risk would Case study: Automated potentially be applicable.” placement in reinsurance Chairman, global reinsurer Tremor is a programmatic digital contracts, due to Solvency II promoting opposing influences on premium growth. auction platform for the a more granular understanding of risk. Most obviously, at the market-level, placement of reinsurance risk. On the other hand, property catastrophe it would depress growth by reducing It matches risk with capital by reinsurance programmes are relatively acquisition costs, which can account for enabling carriers to post their straightforward and will therefore lend more than a fifth of premiums. Given the reinsurance orders on a two- themselves to automated placement more very early stage of automated placement’s sided platform, which are then so than other lines. It is no surprise that development, the extent to which it would matched with bids from capital Tremor began in this part of the market. lower acquisition costs is unclear. In providers. In December 2018, a addition, as per Tremor, brokers would still top 20 US carrier used Tremor Vested interests in the current system be required to run the placement process. to place its entire property are strong. Incumbent underwriters On the other hand, local regulations catastrophe tower with the and brokers with profitable, multi-year notwithstanding, automated placement assistance of its broker. The relationships are likely to resist changes has the potential to drive growth for the auction attracted approximately that would cannibalise their business. brokers that adopt it by expanding their 50 buyers, including reinsurers Established culture and ways of working geographic coverage. The broking process and alterative capital, and may block change to entrenched could be carried out remotely, without the placed $700 million of capacity. processes. Previous initiatives to promote need for in-person meetings. Tremor claims this was placed at electronic trading struggled to gain competitive prices at a fraction of momentum partly for this reason. Impact on market profitability the time and cost of a traditional, Based on examples of automated negotiation-based placement. Market participants might not trust an distribution in other markets, the impact automated system. One major reinsurer of automated reinsurance placement declined to take part in Tremor’s would vary depending on the time horizon. auction because its underwriters were Initially, as the new platform develops, Barriers to change worried about revealing their pricing. the savings from automation would need Adoption will be gradual and focus on One of our interviewees argued that to be passed to reinsurers to incentivise property catastrophe in the first instance. automated placement would not be participation. However, as more reinsurers Many reinsurance contracts are too widely trusted. In other financial markets, and alternative capital providers join the bespoke for automated placement. Not traders have attempted to manipulate platform in search of wider distribution only are they complex and specific to the securities auctions. and higher margins, competition would primary insurer, they can also require increase and the platform would gain annual renegotiation over terms and Impact on market size power, leading to the bulk of savings being conditions. The market is seeing a trend The development of automated shared by platform and insurer. towards more bespoke reinsurance reinsurance placing would have two
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Impact on market dynamics Automated placement would be positive for distribution platforms and insurers. Platforms would gain market power. Insurers would ultimately see rates fall, due to lower distribution costs and lower pricing if platforms increase competition among reinsurers and alternative capital providers. For reinsurers, the implication is more nuanced. Access to risk would widen, but competition for these risks would also increase. For alternative capital providers, automated placement would fit well with a model based on global access to risk, lean operations and a lower cost of capital than reinsurance balance sheets. This could threaten to disintermediate reinsurers if automated placement is used to split risk into small tranches and auction them to the most appropriate sources of capital (based on risk appetite and cost).
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6. Rise of exchange-based secondary markets
Secondary markets in ILS (insurance-linked securities) are relatively undeveloped “You have to think that… [a] secondary compared with those for mainstream securities. Increased trading of ILS could market will emerge and people will trade benefit reinsurers, investors and society by bringing added liquidity to insurance these things as an asset in their own right. risk. To help achieve this, infrastructure providers are building electronic exchanges Investors will trade and underwriters will to facilitate faster and cheaper trading. However, these exchanges face a number trade – Florida catastrophe risk will of high barriers, such as slow and infrequent reporting on losses affecting become an asset in liquid markets– and securities and opaque processes for valuing them. Traders will overcome these this will bring new types of investors into barriers, allowing the reinsurers that fully exploit secondary markets to optimise their the market.” risk and capital more dynamically. Alternative capital SME Trading of insurance risk on secondary markets is infrequent. In catastrophe risks offers a means to manage risk and Our interviewees suggested that this would bonds, the most traded instrument, trading capital more dynamically than with a be possible using existing technology, volumes are generally low. The number reinsurance or retrocession programme such as that underlying Tremor (see case of trades recorded by the US Financial alone. For investors in ILS, a broader and study on page 34). Industry Regulatory Authority’s tracker deeper secondary market would make (TRACE) is typically below ten per day.26 their investments more liquid, reducing Barriers to change The second half of 2018 witnessed high the risk of being forced to sell at a steep Growth of exchange-based secondary trading volumes by historical standards. discount due to a lack of buyers. It would markets will be gradual. ILS are relatively This was driven principally by the losses of also broaden access to ILS. For society, complex and this deters non-specialist 2017-18 feeding through to redemptions, therefore, more active secondary markets investors. Securities would need to trapped capital and the need to raise cash would bring a greater supply of capital be standardised and simplified to be among ILS investors. Nonetheless, the to protect against natural catastrophes embraced by a wider investor base. value of catastrophe bond trades recorded and other risks that are hard to insure on Parametric products, where claims are by TRACE was only $1 billion in H2 2018 account of their potential severity. triggered by an event meeting pre-defined out of $40 billion outstanding at the end of parameters, such as a level of rainfall, 2018.27 The illiquidity of catastrophe bonds Electronic exchanges will encourage more could help introduce standardised risk is reflected in the wide spread between investors to trade ILS. In 2016 the market units and achieve this. A comparable expected losses and coupons.28 reportedly saw the first secondary trade process took place in equities. For instance, of an ILS on an electronic exchange. trading of the S&P 500 was boosted by Growth of secondary markets would be Anecdotally, other exchanges are being the introduction of an index based on positive for reinsurers, investors and built. These will drive up trading if they use expected price fluctuations over a 30-day society. For insurers and reinsurers, automated systems to make it significantly period, the VIX. increased trading of securities whose easier, cheaper and faster to trade than value is derived from exposure to specific with a broker-dealer, as intended.
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Information on losses can be slow to reach Impact on market size end-investors, infrequent and difficult to A liquid secondary market for ILS Case study: use. This makes the valuation of securities would have two opposing influences on Secondary market challenging, which is a major disincentive reinsurance premiums. On the one hand, reinsurance to trading. One of our interviewees it would encourage more alternative trading on an recalled a conversation with a senior capital to enter reinsurance and this would electronic exchange director of an ILS fund. He complained that depress pricing in the lines most affected. In 2016, Tiger Risk, a sometimes it takes months for his fund On the other, a deeper pool of capital catastrophe reinsurance broker to receive information on losses affecting could translate into increased coverage and risk and capital management collateralised reinsurance. In addition, for very large risks, potentially providing a adviser, successfully transacted initial loss estimates have insufficient detail private sector alternative to state-backed what is believed to be the first to inform an updated view on performance risk pools. ever electronic secondary and subsequent data is in a format that is reinsurance trade. The trade hard to process. Impact on market profitability used Xchanging’s X-gRm, which For the market in aggregate, in the long is an online repository of risk term, the rise of secondary markets would information. It allows brokers to “Valuation is one suggest greater price transparency and distribute risk information in a liquidity and, therefore, lower margins. consistent format to reinsurers. of the key issues However, for reinsurers that use secondary markets to optimise their risk and capital that has held back more dynamically, margins would increase. blockchain platforms. It has over 44,000 Our interviewees argued that the uplift to blockchain nodes providing services to the ILS market. profitability would be material, adding that, more than 3,000 financial institutions.29 In in principle, capital should be managed on addition, the Chinese state is encouraging It makes it hard more of an ongoing basis than it is today. home-grown insurance and reinsurance to do anything champions via regulation and legislation. Impact on market dynamics These factors combined suggest that China dynamic or quick Markets in which insurance and will see the most developed risk trading reinsurance products tend to be more platforms emerge over the coming decade. standardised, such as the Lloyd’s with an instrument subscription market, may have an advantage in adopting electronic when you have exchanges. All other factors being equal, it would be easier for such markets to manual, actuarial develop common risk units to trade than it would for markets where insurance valuation.” products are more varied and bespoke.
Alternative capital SME The retrocession market would face a competing form of lower cost hedging. New Our interviewees suggested that some types of investors would enter the market incumbent reinsurers and brokers are with a focus more on trading insurance unwilling or unable to adopt secondary risk rather than buying and holding it. market trading. Their business models and Increased price transparency would be an ways of working are focused on placing and advantage for those players with an edge in retaining reinsurance risk in the traditional underwriting through skill, technology or a manner over a one-year cycle. In addition, combination of both. trading on secondary markets would likely drive a further influx of alternative capital, Chinese players have raced ahead in which some traditional reinsurers are developing insurance as a platform. For opposed to because it threatens to soften instance, Ping An’s OneConnect platform pricing in their markets. is one of the world’s largest commercial
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Part two: Future scenarios
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35 This time is different | Six trends that will determine the future of global non-life reinsurance
Part two: Future scenarios
Over the next ten years the reinsurance The scenario analysis below draws out of insurance for emerging risk in developed industry will, in our view, experience the some of the major opportunities and markets, and increasing the penetration of following trends: threats for reinsurers based on how insurance for traditional risk in developing change occurs in these two areas. economies. Our interviewees were most 1. Pivoting to a risk transfer-plus- bullish on the former. service model Scenario one: Evolutionary change 2. Hollowing out of the middle-market In scenario one, the market experiences Reinsurers can assist primary insurers 3. Ongoing influx of alternative capital minimal change, and current trends increase demand for insurance of emerging 4. Blurring of the value chain’s boundaries develop slowly. Alternative capital remains risks. Two ways to do this stand out. First, 5. Rise of automated placement at just under one-fifth of reinsurance they can help primary insurers develop the 6. Rise of exchange-based capital. Placement is dominated by the data needed to underwrite new types of secondary markets. traditional broking process and is not risk, exploiting a combination of internal automated. Trading on secondary markets and external data. One crucial source of Our analysis suggests that the greatest is not adopted. Electronic exchanges for external data to underwrite new risks is the threat of disruption lies in the degree to risk trading are shunned. Internet of Things or IoT. which alternative capital will gain share from reinsurance balance sheet capital (3), In this scenario there are three main Second, reinsurers can support primary and the degree to which technology will opportunities for reinsurers: create new companies’ product innovation. Given automate risk placement and drive trading markets, develop existing clients and the huge shift in the global economy on secondary markets (5 + 6). lower costs. from tangible assets to harder to insure intangible assets, the latter area is a Alternative capital is potentially disruptive Creating new markets breaks down into priority. Innovative new applications of because of its size, cost and increasing two main areas: increasing the penetration technology can lead the way. appetite for insurance risk. Its sources, for example pension funds, are many times larger than the reinsurance industry’s total u e 12 utu e e u a e e a o capital. It is less costly than reinsurance balance sheet capital (less than half the cost on an indicative basis). It has an Significantly increasing appetite for insurance risk higher than today’s level because a growing number of institutional e a o ou investors recognise the benefits of Broad-based insurance risk as a diversifying asset. change
The combination of automated risk e a o t o placement and exchange-based trading Capital-focused of risk on secondary markets has far- change D u t o reaching implications for reinsurers. mo t l el Most obviously, automated placement could increase competition by dividing risk into small tranches and auctioning e a o t ee them to the most appropriate source of Distribution- alternative or reinsurance balance sheet focused change capital. Exchange trading of risk would P o o t o o alte at e a tal 49% allow reinsurers to adjust their positions e a o o e more dynamically than with the current Evolutionary renewal cycle, potentially boosting returns. change It would also increase the liquidity of risk D u t o by encouraging a more active secondary Today’s level lea t l el market for insurance-linked securities than (around 20% overall capital) we see today, which in turn would likely Non-existent te t o te olo e abled Widespread lower rates. la eme t a d t ad
36 This time is different | Six trends that will determine the future of global non-life reinsurance
For example, Lloyd’s syndicate Beat 4242 has collaborated with an AI specialist, “The thing is, if you look at the US there’s Previse, to insure supply chain finance risk. The new product insures supply chain tons of risk to go after (e.g. Internet of finance providers against the risk they pay an invoice that cannot be recovered Things, driverless cars, cyber). You can’t (because a corporate declines it on legitimate grounds). AI underpins the ignore the mature markets and growth in product. It automates the manual process for checking invoices and predicts the the economy (such as we’re seeing in the likelihood of each being declined.30 US) will drive up growth in exposures.” To grow revenue among existing clients, reinsurers can pivot to providing a Country CEO, global reinsurer bundle of risk transfer and other (i.e. non-insurance) services. Some of our To protect margins, reinsurers can find pricing would likely remain low due to interviewees predict a bright future for this operational efficiencies and rationalise the abundant capital, depressing returns for type of model, with reinsurers becoming value chain. Major opportunities include those unwilling or unable to make the predominantly service-based companies. automating manual processes and using necessary adjustments to offset lower Providing new technology-based services InsurTechs and other companies that are pricing with lower expense ratios. In the that save primary insurers the risk and cost developing solutions for discrete activities section on the value chain above, our of in-house technology development, and within the reinsurance value chain. analysis shows that over the period from solve critical business issues, will be key 2013 to 2018, expense ratio increases to success. In this evolutionary scenario, the eroded underwriting profitability to the principal threats for reinsurers lie in same extent as loss ratio increases. being undifferentiated and/or inefficient relative to peers. Primary insurers would Scenario two: Capital-focused change Case study: Using gravitate even further towards strategic In a capital-focused change scenario, external data to partnerships with the reinsurers best alternative capital grows steadily, underwrite new able to service the full range of their expanding its share of overall capital, and risk pools needs (encompassing both risk transfer spreading to new lines of business. This, in Legionella bacteria is and value-added services). One of our turn, leads to new reinsurer business found in man-made water interviewees summarised this by saying models dedicated to issuing securities systems. Human exposure to that the market would see more strategic rather than retaining risk on the balance Legionella can be risky and lead insurer-reinsurer alignments. In addition, sheet. The cost of capital for the industry falls. to Legionnaire’s disease. In the UK, building owners/operators are responsible for inspecting “We are really focused on how to help pipes for Legionella bacteria. This is typically carried out manually, clients grow their business. Typically which can be inaccurate and/ or infrequent. For this reason services and solutions include things Legionella risk is typically excluded from commercial like telematics, product design and property covers. Shepherd analytics, a UK-based InsurTech, data analytics to support steering of allows carriers to cover Legionella risk using data from sensors that the portfolio, identifying segments monitor water systems. that are, and are not, so good.”
Head of Casualty Underwriting, global reinsurer
37 This time is different | Six trends that will determine the future of global non-life reinsurance
However, these shifts take place without Additionally, reinsurers could develop The opportunity for reinsurers in scenario any material increase in technology-enabled hybrid earnings models, combining three is to engage in more frequent trading risk trading or placement. The traditional underwriting returns (from retaining risk) of risk. This could promote efficiency in broking process dominates placement and with fees for sharing risk with alternative pricing, and a better alignment between trading of ILS is via broker-dealers, not on capital sources. This model could be taken risk and the optimal source of capital to electronic exchanges. a step further by structuring and issuing bear it. In primary insurance the market 100 per cent of risk as securities. Due to has seen comparable developments. the lack of risk retention on the balance For example, distribution platforms have “The future will sheet, this would be more akin to asset used social media and online search management than reinsurance, potentially data to identify and assemble pools of see big players offering the traditionally high returns specialist risk that are diversifying for witnessed by the former. insurers’ capital. These pools would be leveraging too expensive to identify, market to and To accelerate this model, reinsurers could underwrite in-house. lots of smaller build a system to deliver a real-time flow of data relevant to the securities’ specialised players future performance (e.g. daily updates “Reinsurers should on premiums, exposures and losses as suppliers.” attaching to the underlying insurance be adding stuff risks) to investors. This would help to Country CEO, global reinsurer address the lack of timely and detailed into the portfolio data on the losses underlying alternative For reinsurers, the rise of alternative capital investments’ performance, which all the time. To do capital in this scenario would represent an is commonly cited as a disincentive for opportunity for hedging with lower costs investing in them. that, you need rich and a greater supply of capital than with using a retrocession programme alone The major threat for traditional reinsurers metrics that enable (i.e. purchasing reinsurance for reinsurance). would be in failing to adapt to the new One of our interviewees claimed that, landscape. Reinsurers competing with you to optimise – in future, the retrocession market will lower-cost alternative capital without be viewed as different levels of hedging, differentiating in other areas, such as a looking at changes incorporating both reinsurance balance service offering, exploiting it for hedging sheet capital and alternative capital to a or generating fee income from issuing in the risk profile greater extent than today. securities, would face an uncertain long- term future. to help you “Reinsurance Scenario three: Distribution- understand if you focused change retrocession In scenario three, risk placement is need other types increasingly automated and takes place terminology may on digital platforms (as per the Tremor of capital to help case study, see page 34). This process disappear and leads to the disaggregation of risk into you support that.” tranches that are more granular and we’ll instead have varied than the layers of a traditional Alternative capital SME reinsurance programme. Incumbents develop this system in a way that prevents different levels However, to exploit risk exchanges, the further entry of alternative capital by, reinsurers would likely need to gain for example, trading reinsurance contracts of hedging.” deeper insight into their enterprise- (not securities) and by building private wide risk and develop externally facing risk exchanges. Alternative capital SME systems. At a high level, this would
38 This time is different | Six trends that will determine the future of global non-life reinsurance
involve improving data reliability and timeliness (e.g. via automation of manual data quality checking), development of internal analytics for the assessment of enterprise-wide risk (potentially akin to the development of Value at Risk measures in banking) and investment in systems capable of trading risk quickly and securely (e.g. application programming interfaces).
The principal risks would lie in investing in technology that rapidly becomes obsolete or, in contrast, moving too slowly. Financial markets have witnessed false dawns in electronic risk trading with significant investments ultimately written off. On the other hand, with trading going mainstream, a greater threat would be moving too slowly and being at a competitive disadvantage to more dynamic players.
Scenario four: Broad-based change In a broad-based change scenario, the market experiences profound shifts in the sources of its capital and means of distribution simultaneously. Alternative capital increases its share steadily. Risk placement moves to automated platforms and risk trading moves to exchanges with standardised units of risk, leading to deep secondary markets.
The main opportunity would be to exploit both trends and to provide a platform from risk to alternative capital. Risk trading could be used to adjust risk and capital dynamically. However, more fundamentally, underwriters could form the most crucial, middle, part of the value chain, where the selection and pricing of risk takes place. In this case, technology such as analytics to support underwriting would become even more important. The role of brokers would be less certain.
The key threat would be disintermediation. Platforms operated by industry outsiders could disintermediate reinsurers by providing a more direct route from insurers and their risk pools to alternative, lower-cost capital from huge institutional investors.
39 This time is different | Six trends that will determine the future of global non-life reinsurance
Conclusion
The future of the global non-life reinsurance industry has never been more in doubt. For the first time, reinsurers are faced with an urgent need to reverse declining profitability and the convergence of multiple powerful forces capable of driving change. In this report, we have identified and dissected six trends that will determine the industry’s future. Yet, at the same time, the reinsurance industry will likely remain a difficult one to disrupt. The future of global non-life reinsurance is therefore not about disruption, nor is it about evolution: it is about adapting faster.
Looking ahead – questions for discussion
• Many brokers and reinsurers will have to reform their business models to thrive
• Alternative capital will reach more than a quarter of the market in less than ten years
• Technological change will disrupt the reinsurance value chain, especially in claims handling and risk modelling
• Proportional reinsurance will be replaced by relatively low-cost pools of capital from institutional investors and bundled risk-transfer plus service offerings from reinsurers
• In ten years the biggest reinsurer and risk trading platform in the world will be Chinese
• Will reinsurance be replaced by insurance or even ‘risk transfer’ over the next ten years?
40 This time is different | Six trends that will determine the future of global non-life reinsurance
Endnotes
1. “EVALUATING SYSTEMIC RISK Property & Casualty Reinsurance”, 16. “Just 1% of European pensions allocate to ILS: Mercer survey”, Artemis, 21 Reinsurance Association of America, 27 July 2011. See also: June 2018. See also: https://www.artemis.bm/news/just-1-of-european- https://www.federalreserve.gov/SECRS/2012/May/20120510/R- pensions-allocate-to-ils-mercer-survey/ 1438/R-1438_043012_107243_412035027948_1.pdf 17. “ALTERNATIVE CAPITAL AND ITS IMPACT ON INSURANCE AND REINSURANCE 2. “2017 U.S. billion-dollar weather and climate disasters: a historic year in MARKETS”, Insurance Information Institute, March 2015. See also: https:// context”, Adam B. Smith, Climate.gov, 8 January 2018. See also: https:// www.iii.org/sites/default/files/docs/pdf/paper_alternativecapital_final.pdf www.climate.gov/news-features/blogs/beyond-data/2017-us-billion-dollar- weather-and-climate-disasters-historic-year 18. “Can M&A help reinsurance capital to be as low-cost & efficient as ILS?”, Artemis, February 2015. See also: https://www.artemis.bm/news/can-ma- 3. “Earnings volatility concerns drive reinsurance buying, Willis Towers Watson help-reinsurance-capital-to-be-as-low-cost-efficient-as-ils/ survey finds”, Willis Towers Watson, 9 July 2018. See also: https://www. willistowerswatson.com/en-GB/news/2018/07/earnings-volatility-concerns- 19. Guy Carpenter Global Property Catastrophe Rte-One-Line Index, Artemis. drive-reinsurance-buying-willis-towers-watson-survey-finds See also: https://www.artemis.bm/global-property-cat-rate-on-line-index/
4. “Reinsurance and Emerging Risks”, Larry Schiffer, International Risk 20. “AXA to acquire XL Group: Creating the #1 global P&C commercial lines Management Institute, June 2013. See also: https://www.irmi.com/articles/ insurance platform”, AXA, 5 March 2018. See also: https://www.axa.com/en/ expert-commentary/reinsurance-and-emerging-risks newsroom/press-releases/20180305-AXA-to-acquire-XL-group
5. “How AI Can And Will Predict Disasters”, Naveen Joshi, Forbes, 15 March 21. “Wholesale Insurance Broker Market Study”, February 2019, Financial 2019. See also: https://www.forbes.com/sites/cognitiveworld/2019/03/15/ Conduct Authority. See also: https://www.fca.org.uk/publication/market- how-ai-can-and-will-predict-disasters/#1a6df8105be2 studies/ms17-2-2.pdf
6. “Swiss Re’s sigma on natural catastrophes and man-made disasters in 2012 22. Analyze Re. See also: http://analyzere.com/ reports USD 77 billion in insured losses and economic losses of USD 186 23. “Intangible Assets Increase to 84% of the S&P 500’s Value in 2015 billion”, Swiss Re, 27 March 2013. See also: https://www.swissre.com/media/ Report”, Business Intangibles LLC, 11 March 2015. See also: https://www. news-releases/2013/nr_20130327_sigma_natcat_2012.html businessintangibles.com/single-post/2015/03/11/Intangible-Assets- 7. “Global Cyber Security Insurance Market 2018 Size, Overview, Trends, Increase-to-84-of-the-SP-500s-Value-in-2015-Report Various Insurance Types, Applications, Key Player’s Competitive Analysis & 24. “Lloyd’s confirms 2019 targets for electronic placement mandate”, Lloyd’s, Growth by 2023”, Reuters, 16 May 2018. See also: https://www.reuters.com/ 20 December 2018. See also: https://www.lloyds.com/news-and-risk-insight/ brandfeatures/venture-capital/article?id=36676 press-releases/2018/12/lloyds-confirms-2019-targets-for-electronic- 8. “Global Reinsurance Highlights 2018”, S&P Global Ratings. See also: https:// placement-mandate www.spratings.com/documents/20184/1581657/Global+Reinsurance+Highli 25. “Tremor completes reinsurance auction using programmatic marketplace”, ghts+2018/98dc8810-eead-8ff0-3f07-9889caaab0b0 Charlie Wood, Reinsurance News, 19 December 2018. See also: https:// 9. “US Cyber Market Update 2017 US Cyber Insurance Profits and www.reinsurancene.ws/tremor-completes-reinsurance-auction-using- Performance”, Aon, July 2018. See also: http://thoughtleadership. programmatic-marketplace/ aonbenfield.com/Documents/201807-us-cyber-market-update.pdf 26. “Unusual levels of cat bond trading recorded on TRACE”, Artemis, 22 10. “Swiss Re partners with Tencent’s WeBank to research AI use in reinsurance”, November 2017. See also: https://www.artemis.bm/news/unusual-levels-of- Matt Sheehan, Reinsurance News, 24 May 2019. See also: https://www. cat-bond-trading-recorded-on-trace/ reinsurancene.ws/swiss-re-partners-with-tencents-webank-to-research-ai- 27. “Cat bond & related ILS market ends 2018 at new record size: Report”, use-in-reinsurance/ Artemis, 2 January 2019. See also: https://www.artemis.bm/news/cat-bond- related-ils-market-ends-2018-at-new-record-size-report/ 11. “Global Reinsurance Highlights 2018”, S&P Global Ratings. See also: https:// www.spratings.com/documents/20184/1581657/Global+Reinsurance+Highli 28. “Cat bond spreads declined but multiples rose in second-quarter of 2018”, ghts+2018/98dc8810-eead-8ff0-3f07-9889caaab0b0 Artemis, 23 July 2018. See also: https://www.artemis.bm/news/cat-bond- 12. “Global Reinsurance Capital Is Resilient Despite Losses of $230B over 2 spreads-declined-but-multiples-rose-in-second-quarter-of-2018/ Years: Aon”, L.S. Howard, Insurance Journal, 11 January 2019. See also: 29. “Chinese Giant Ping An Claims to Have Over 44,000 Nodes on Its https://www.insurancejournal.com/news/international/2019/01/11/514608. Commercial Blockchain Platform”. Lylian Teng, 8BTC, March 2019. See also: htm https://news.8btc.com/chinese-giant-ping-an-claims-to-have-over-44000- 13. “Total Reinsurance Capital Drops in 2018, but Alternative Capital Keeps nodes-on-its-commercial-blockchain-platform Rising: Willis Re”, L.S. Howard, Insurance Journal, 24 April 2019. See also: 30. “Lloyd’s syndicate launches AI-enabled insurance product for supply chain https://www.insurancejournal.com/news/international/2019/04/24/524642. finance”, Sanne Wass, Global Trade Review, 31 July 2019. See also: https:// htm www.gtreview.com/news/fintech/lloyds-syndicate-launches-ai-enabled- 14. “Swiss Re reinsurance chief cites tailored deals as opportunity”, 21 March insurance-product-for-supply-chain-finance/ 2017, Reinsurance News. See also: https://www.reinsurancene.ws/swiss-re- reinsurance-chief-cites-tailored-deals-opportunity/
15. We define alternative capital as the various forms of capital that are alternative to equity on a reinsurer’s balance sheet, including insurance linked securities (ILS) such as catastrophe bonds, collateralised reinsurance and sidecars
41 This time is different | Six trends that will determine the future of global non-life reinsurance
Contacts
Insurance leaders
Global Ireland Switzerland Neal Baumann Donal Lehane Simon Walpole New York Dublin Zurich +1 212 618 4105 +353 1 417 2807 +41 58 279 71 49 [email protected] [email protected] [email protected]
Canada Japan UK James Colaco Holger Jens Roger Froemer Clive Buesnel Toronto Tokyo London +1 416 874 3152 +81 70 4579 2078 +44 20 7303 3247 [email protected] [email protected] [email protected]
China Netherlands USA Tim Pagett Marco Vet Gary Shaw Hong Kong Amsterdam Parsippany +852 2238 7819 +31 88 2881049 +1 973 602 6659 [email protected] [email protected] [email protected]
France South Africa Eric Meistermann Andrew Warren Paris Johannesburg +33 1 40 88 15 98 +27 11 202 7423 [email protected] [email protected]
Germany Spain Kurt Mitzner Jordi Montalbo Duesseldorf Barcelona +49 21187 722656 +34 93 253 3733 [email protected] [email protected]
We would like to thank the following organisations for providing representatives who we interviewed as part of our research.
• Allianz Re • Ledger • Swiss Re
• Artemis • Lloyd’s of London • Tremor
• Axis Capital • Munich Re • Vario Partners
• Hannover Re • Munich Reinsurance America • Willis Re
• International Finance Corporation • Securis
42 This time is different | Six trends that will determine the future of global non-life reinsurance
Notes
43 This time is different | Six trends that will determine the future of global non-life reinsurance
Notes
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