Small reinsurers will survive
Much is made of the tendency of
large players to gobble up their
smaller rivals, and each other,
evoking visions of a future where a small
number of huge players dominate the market.
But this vision is probably inaccurate, according
to more than half the respondents to the most
recent Intelligent Insurer renewals survey.
In all, 56 percent of respondents said
consolidation will not make a significant
difference to the role small players play in the
That comprised 37 percent of respondents
to the survey who said smaller players will be
acquired, only to be replaced by new players
that emerge to fill niche areas. This is already
happening, noted one respondent, who
pointed to “a wealth of smaller reinsurers
emerging across the globe”.
“The consolidation trend leaves larger
companies less nimble and less responsive to
smaller books, opening the door for selective
capital deployment into niche sectors,”
added another, explaining one possible driver
behind the trend.
As consolidation continues,
what is your prediction for how it will
change the reinsurance landscape?
Smaller players get
acquired, but more will
emerge to fill niche areas 37%
There will be clear tiering
with the biggest players
It will make little dierence
in the long term 19%
There will be fewer
reinsurers but those le
will be bigger 16%
“Size matters,” quipped another respondent,
Smaller players get acquired, but more will There will be clear tiering with the biggest players It will make little dierence in the long term There will be fewer reinsurers but those le “but also technical skill and competence,”
highlighting another reason why smaller players
might be able to find a competitive advantage,
especially in niche areas.
A further 19 percent said industry
consolidation will make little difference in
the long term. One reason for this might be
the desire among insurance companies to
maintain some diversity in their reinsurance
“Buyers will continue to rationalise their
reinsurer panels while wishing to maintain
diversity,” noted one respondent.
The remaining respondents agree that
consolidation is driving structural changes
in the reinsurance market, with 28 percent
of the survey respondents predicting an
increasingly tiered market in which the
biggest players dominate and progressively
smaller companies compete for scraps.
Only 16 percent subscribed to the vision
of a highly concentrated market in which a
smaller number of much larger reinsurers
compete among themselves. l
Extreme weather events have driven spike in ILS impairments
Following the difficult years of 2017
to 2019, which were dominated by
extreme hurricanes, earthquakes,
wildfires, typhoons and winter storm events,
25 insurance-linked securities (ILS) bonds
are expected to be impaired in the 12-month
period to June 30.
These impairments are predicted in an Aon
Securities annual report on the ILS sector,
Alternative Capital: Strength Through Disruption,
to generate bond losses totalling $1.25 billion.
This represents a dramatic increase in
impairments. Only seven catastrophe bond
classes of notes had been impaired before
2017, with losses totalling $900 million.
This increase has had a dramatic impact on
the dynamics of capacity, collateral treatment,
pricing, and investor sentiment, said the
report, which analysed the 12-month period
to June 30, 2019.
The report found that $5.4 billion of
catastrophe bonds were issued in the 12
months to the end of June, including in the
life and health sector.
Catastrophe bond limit on-risk also
inched up to a record $30.3 billion in that
period, from $30.0 billion in 2018.
Paul Schultz, chief executive officer of Aon
Securities, said: “In the wake of the recent
losses, the suite of ILS transactions and the
mechanisms by which they respond have
been under the spotlight to a degree not seen
before in the sector.”
The market can take encouragement from
the fact that impaired bonds have responded
as designed, Schultz said.
“After this period of contraction, we expect
alternative capital to resume its upward
growth momentum later this year and into
2020,” he predicted.
There were 21 sidecar transactions in the
12 months to June 30, seven of which were
launched by new sponsors, and 14 were
renewing entities. Between them they secured
$2.71 billion in limit.
Meanwhile, the estimate for in-force
industry loss warranty (ILW) limit stood at
approximately $6 billion. Capital markets
investors continued to be a major driver in
the space, as both purchasers and suppliers.
There was $93 billion of alternative capital
in the re/insurance sector at the end of June, a
decrease of $5 billion from the previous year,
mainly driven by a reduction in the collateralised
reinsurance segment, the report said. l
Monte Carlo Today Day 4 Wednesday September 11 2019