Global reinsurance:
fighting the last war
Robert DeRose and Scott Mangan of AM Best look at what reinsurers
need to concentrate on—and what they need to avoid—as they review
recent events.
We insulate ourselves by thinking that the same market scenario will
happen again, and that we will be better prepared by repositioning the
portfolio. The more likely result is getting caught off-guard again.
Unfortunately, no two market cycles are ever quite the same, so the
past cannot be a future prologue in precise terms. This causes investors
to shift their tolerance for risk depending on market conditions. The
underwriting cycle is no different: currently, it appears that the days
of large catastrophic events triggering a widespread market hardening
are gone, replaced by pockets of micro-cycles based on geographic and
loss experience.
42
November 2019
Bermuda:Re/insurance+ILS
AM BEST
Investors are often described as fighting the last war—they place
too much importance on recent events when making decisions
and assume the most recent trends will repeat themselves
indefinitely. Owing to a series of costly disasters in 2017 and
2018, the global reinsurance market seems to have entered a period of
seismic change and nerve-wracking uncertainty, after several years of
benign loss activity.
Our natural human tendency is to resist change, as it is disruptive. The
stock markets similarly hate uncertainty, as do most businesses—including
re/insurance—because it makes long-term planning far more challenging.
SHUTTERSTOCK / CALIN STAN