
“What appears to be the most transformative element recently is the embrace
and use of third party capital.” Robert DeRose
spectrum of risks. It is also evident that, over time, their business
models have continually evolved, adapting to the shifting dynamics of
the reinsurance market.
Mergers and acquisitions (M&A) activity has not been central to
the success of the better-performing companies, although it has
been necessary for some second- and third-tier reinsurers simply
to maintain relevance in an increasingly competitive landscape. But
what appears to be the most transformative element recently is the
embrace and use of TPC.
As such capital has grown in prominence and almost literally taken
over the retro reinsurance space, it has provided ballast for traditional
reinsurers to continue to offer property catastrophe capacity to clients,
despite the rate pressures they face. Beyond retrocession, many
traditional reinsurers have been at the forefront of managing this
capacity on behalf of investors by using sidecar vehicles, which for
the investor and the underwriter allow for a strong alignment of risk
in terms of sharing profit and reputational exposure.
It should therefore be no surprise that more recently a growing
number of M&A transactions have brought together traditional and
TPC providers. This increasing alignment should serve to bring about a
more rational and stable pricing environment, at least in the property
catastrophe segment of the market.
With the mid-year renewals behind us, it remains to be seen what
lessons have been learned from the loss events of 2017 and 2018 and
whether those lessons will result in any meaningful and sustainable
change in the market. No-one can predict the longer-term outcome;
only time will tell.
We do know that the future landscape will be different from today’s,
and market disrupters will continue to emerge. We also know that
those who learned from the last war are not the ones still fighting the
last war; rather, they are tactically preparing for whatever challenges
lie on the horizon.
This article is an excerpt from AM Best’s Market Segment Report “Global
Reinsurance: Fighting the Last War”.
Robert DeRose is a senior director at AM Best. He can be contacted at:
robert.derose@ambest.com
Scott Mangan is an associate director at AM Best. He can be contacted
at: scott.mangan@ambest.com
November 2019
Bermuda:Re/insurance+ILS
AM BEST
Figure 1: Global reinsurance–combined ratios
89.7 90.4
33.5 34.2
95.2
34.7
110.1
33.6
102.3
34.0
97.6
34.0
56.2 56.2 60.6 76.5 68.2 63.5
14
12
10
8
6
4
2
0
44
120
100
80
60
40
20
0
2014 2015 2016 2017 2018 5yr Avg
Favorable reserve development (%)
Combined ratios
Expense ratio Loss ratio Favourable reserve development
Source: AM Best data and research
Figure 2: Global reinsurance–return on equity
13.0
11.6
9.5
8.3
-0.3
1.0
14
12
10
8
6
4
2
0
-2
2013 2014 2015 2016 2017 2018
(%)
ROE 5yr Avg
Source: AM Best data and research
What do the winners do differently?
The composite contains a few winners, companies that consistently
outperform their peers—in some cases, by a considerable margin. The
question is: what do they do differently? Each company has deployed
its own unique strategy, but there are some broad similarities. Each
is globally diversified, capable of leading programmes across a broad