The reinsurance sector continues to strive for greater efficiency, scale, and diversification, increasingly utilising alternative risk transfer mechanism amidst a need for more profitable business, with a “new reinsurance world order” taking shape, according to Everest Re’s John Doucette.
Everest Re, the global insurer and reinsurer has now released its second-quarter 2017 results, and during the firm’s earnings call President and Chief Executive Officer (CEO) of its Reinsurance unit, John Doucette, discussed persistent market trends in the sector.
Doucette explained that during the mid-year renewals, which saw prices across the majority of reinsurance business lines decline steeper than most anticipated, the reinsurance sector continued to strive towards four main objectives in response to the ongoing softening environment.
There was continued evidence of the market looking for more capital efficiency via scale, size, and diversification, explained Doucette. The use of alternative risk transfer mechanisms, or insurance-linked securities (ILS) such as catastrophe bonds, persisted, said Doucette, as traditional players look to utilise and work with ILS in order to “enhance capital efficiency and best match capital to risk.”
The focus on distribution increased during the first-half of 2017 as reinsurers look to access more profitable business in an effort to offset competition and subsequent lower returns in most lines of business, especially the property catastrophe arena. And fourth, Doucette noted improved operational and expense efficiencies.
“Those reinsurers that can execute on these objectives will succeed in both good and bad reinsurance markets, but those that do not could be disintermediated or diminished as the reinsurance value chain compresses,” warned Doucette.
Everest Re, explained Doucette, will remain nimble and responsive to market conditions, adapting its strategies to ensure it remains successful both today, and “into the future in the new reinsurance world order.”
The reinsurance market remains very challenging, and absent a truly market turning event, conditions are expected to remain difficult for the remainder of 2017 and into 2018. The rise of technology, alternative reinsurance capital and mechanisms, alongside a push from reinsurers to increase profits and efficiency during this testing time is reshaping the industry, and it will be interesting to see how companies adjust and manage the “new reinsurance world order.”
