For new reinsurance market entrants the cost of admission to the market is rising, as consolidation results in fewer, larger players, making the barrier to entry higher, according to Standard & Poor’s.
The rating agency explains that ceding companies continue to look for reinsurers who they can be confident will be around to pay claims when required.
As a result reinsurers that can demonstrate longevity in the market can be favoured and ceding company reinsurance panels can have fewer changes than before, as panelists are returned to renewal after renewal.
With the spate of mergers and acquisitions resulting in consolidation within the reinsurance industry, small and mid-sized reinsurers have been looking for ways to acquire the scale required to be more relevant, to enhance their competitive positions and position themselves as viable partners for cedents.
This underscores the difficulty reinsurers have in ensuring the longevity ceding companies require, S&P says. But it also exacerbates the difficulty that other smaller players and new players have in reaching the point where they are broadly accepted as viable markets.
As consolidation reduces the number of reinsurance markets available, it is also “raising the price of admission for reinsurers that seek to demonstrate their relevance and staying power to increasingly sophisticated clients,” S&P explains.
So far, these operational barriers to entry remain “moderate” S&P believes, but it is monitoring this dynamic of the market as it could increase the pressure on smaller and newer players.
