In a softening market, how does a reinsurer ensure continuity of offer for cedants while generating appropriate returns for shareholders?

The down cycle tests how well a reinsurer can underwrite, and that determines how well that company is positioned for future opportunities. Making the right decisions is more difficult in a soft market than in a hard one, and far more critical.

When reinsurance markets soften, some reinsurers may revise their approach to pricing and assuming risk in order to retain premium volume – accentuating the downturn. This pricing cyclicality disguises the actual level of risk and threatens supply stability. It is up to reinsurers to manage the cycle twists and turns in order to provide their clients with continuity of offer and create value for shareholders.

To manage the cycle successfully, reinsurers must demonstrate a number of important attributes. They should have the global reach and established market position to access substantially all opportunities in the market. There should be a consistent framework for pricing risk, well-defined and executed risk management practices, and underwriters with the expertise to identify appropriate risks and weak pricing and the discipline to accept the business for the right reasons. Of course, balance sheet and reserving integrity become even more important, and candid dialogue with clients around risk selection and pricing methodology is essential.

Soft Cycle Strategy

Reinsurers that satisfy these criteria can maintain the core of their existing business in a soft cycle, and build value for the future through new, profitable initiatives. Opportunities exist in a number of areas. Cedant buying behavior has changed, and insurance-linked securities are in greater demand as an alternative reinsurance product. Emerging markets offer scope for growth: the end of the reinsurance monopoly in Brazil is opening up a whole new market, and China is inviting foreign investors into its largely undeveloped reinsurance sector. Life reinsurance offers a number of growth opportunities in both mortality and longevity.

Our approach is thoughtful and, while we always operate within the parameters of our risk management framework, we will be innovative and transparent. New business initiatives are driven at the business unit level – each business unit explores opportunities within its particular markets, diversifying the execution risk. Our financial strength means we can manage multiple efforts, and by adhering to our policies and processes, we have a good chance of achieving success. Next >