In the company’s latest reinsurance renewals report, Willis Re’s Chief Executive Officer (CEO), James Kent, observed a dynamic change in reinsurance mergers and acquisitions (M&A) activity as large primary carriers re-enter the reinsurance market.
He suggested that new distribution models are causing the greatest disruption to major non-life primary companies with large personal line and small medium enterprises portfolios, although companies with life portfolios are also facing profitability challenges.
Kent thus contends that buying large transparent, well-managed reinsurance companies with strong synergies is becoming an increasingly attractive prospect for large primary companies.
Most large primary carriers abandoned the reinsurance market in the 1990s and early 2000s due to poor exposure management, which led to earnings volatility and capital strains from significant underwriting losses.
However, access to diversified sources of risk and better management of technical issues through advanced risk quantification techniques now seem to be drawing back large primary companies looking for growth.
The management behind these primary companies also seem increasingly confident in their ability to handle the different social dynamics of a reinsurance business, although Kent suggests they may be tested by their portfolio management ability and use of large balance sheets.
Kent’s M&A commentary featured in Willis Re’s new reinsurance renewals report alongside claims of ‘broadly flat’ renewal pricing at the April 1st contract negotiations.
