FOREWORD Reinsurers Can’t Rest on Laurels;
Relevance Will Be Key to Future Success Dennis P Sugrue
Most people would agree that it isn’t advisable to put the car in cruise control and focus attention on the rear-view mirror on your morning commute. But many observers of the re/ insurance market might argue this is an acceptable way to drive our industry. A recent string of very profitable years have led to record levels of capital resulting in excess capacity. Continued enhancements to enterprise risk management and capital modelling might suggest that if reinsurers continue the status quo, the current soft cycle will see itself out and they will emerge on the other side unscathed. However, as with driving, this approach will lead to a crash. Rather, a keen focus on the road ahead enables the industry to anticipate twists and turns, avoid congestion and roadblocks and discover new routes to the goal. Our lead article Global Reinsurers: Innovation And Adaptation Are Key to Relevance explains how the industry’s recent successful run is not an indicator of future glory, and evaluates some options for reinsurers to explore if they are planning to lead from the front in the future. Companies will need to find new opportunities for profitable growth and deployment of capital, as the piece Pricing Slides As Reinsurers Strive For Competitive Footing discusses how pricing is expected to continue to decline in many traditional lines and regions in coming months. Climate change is an opportunity and a threat for the reinsurance industry. In Climate Change Could Sting Reinsurers That Underestimate Its Impact we demonstrate that if the industry doesn’t adequately price for increasing frequency and severity of natural catastrophes, its excess capital position could disappear quickly. On the other hand, reinsurers’ expertise in assessing, managing and pricing catastrophe risk opens a door for the industry to aid governments and corporations in building their disaster resilience. Working With Governments To Increase Disaster Resilience Can Open New Doors For Reinsurers explores how these transactions are an avenue for reinforcing the industry’s relevance to underdeveloped insurance markets. Alternative capital continues to flow into the reinsurance space in record levels and various forms. This can be a double-edged sword as this competing business model also offers an opportunity for reinsurers to harness additional capital to write risks. In Hedge Fund Reinsurers: Are The Potential Rewards Worth The Added Risk? we examine the viability and the sustainability of the hedge fund reinsurer model and we explore whether combining a reinsurer strategy with a hedge fund strategy creates higher risk- adjusted returns than could be achieved separately. In the article titled A Record Volume Of Catastrophe Bonds Highlights Increasing Competition In The Insurance-Linked Securities Market we provide an overall picture of the continued growth in the alternative market, particularly insurance-linked securities (ILS), and its impact on the competition.
Global Reinsurance Highlights 2014
Economic growth in developing markets will eventually require re/insurance products to protect increasing wealth. In Regional Reinsurers In Asia-Pacific Are More Resilient To Industry Headwinds Than Those In CEEMEA we highlight some of the regional differences between local reinsurance markets in developing economies; while Singapore’s Push To Expand Insurance Hub Hinges On Sophistication And Expertise discusses some of the challenges that City-state faces in becoming the regional platform for re/insuring the APAC region. The G-20’s Financial Stability Board is widely expected to name a group of globally systemically important reinsurers to join the group of nine primary companies already holding the G-SII designation. Our research in Natural Catastrophes Are Unlikely To Trigger Systemic Failures In Insurance suggests that while reinsurers are charged as the backstop for the world’s catastrophe risk, the collapse of one or two key players won’t bring the industry to a grinding halt. However, the rating implications of the G-SII tag are still unclear, as explained in Insurers May Not Pose A Systemic Risk, So Do The G-SII Designation’s Costs Outweigh Its Benefits?. In contrast to the non-life sector, the life reinsurance universe has just emerged from a period of consolidation and shrinking cessions. Global Life Reinsurers See An End To Major Consolidation And Signs Of Stabilizing Growth explains why a more promising outlook should be tempered by memories of past mistakes. We endeavor to continue providing the market with more transparency on what drives the make-up of our ratings, and shine light on how current industry trends could lead to rating changes. In Global Reinsurers’ Appetite For Catastrophe Risk Remains Largely In Check and Tough Competition Could Put Ratings On Global Reinsurers Under Pressure we provide benchmarks and peer comparisons on catastrophe exposure, earnings and capital metrics, and other rating subfactors to help users of our ratings understand what it looks like under the hood.
Meanwhile, our industry and country risk assessments Insurance Industry And Country Risk Assessment On The Global Property/Casualty Reinsurance Sector Is Intermediate and Global Life Reinsurance Sector Carries A Low Industry And Country Risk Assessment provide a top-down view on the risks of doing business in these particular sectors. We think that Global Reinsurance Highlights captures the key issues facing reinsurance management, investors and other stakeholders. We hope that you will enjoy the 2014 edition and we would welcome your feedback on possible enhancements for future years.
Dennis P Sugrue
London, (44) 20-7176-7056
dennis.sugrue@
standardandpoors.com
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