At a symposium hosted by Guy Carpenter at this year’s Baden-Baden conference senior industry figures provided a range of insights into the factors contributing to the drive by major insurance groups to extend their underwriting remit and considered the implications of the resurgence of the global composite model on market dynamics as well as the ramifications for customers.
In his opening remarks, the Chief Executive Officer of Guy Carpenter, international, James Nash said that current market conditions were putting increasing pressure on returns with some companies viewing consolidation as a potential solution.
Nash highlighted how certain market participants were also looking to achieve greater vertical integration by establishing more control over the entire value chain from policyholder to capital provider. In his final comments.
“The capital to risk value chain will continue to evolve but in the short run sellers are open for business offering more capacity and innovative solutions to solve strategic capital and volatility issues. We are seeing supply-driven demand.”
Pina Albo, Group CEO of Hamilton Insurance Group added that, while consolidation is not a new market phenomenon, several of the factors influencing the strategic thinking behind it had changed.
“We’re watching the M&A movie again, but this time around we’re seeing different plot twists. There are three developments that I believe are currently influencing M&A activity today.”
“First is the impact of alternative capital, second is the InsurTech phenomenon, and third is the entire digital revolution.”
Addressing the question of whether bigger is necessarily better, Albo added: “You don’t have to be big to be beautifully relevant or financially successful, but you do have to be focused.”
Meanwhile, Steve Arora, CEO of AXIS Re, called on the industry to embrace change to tackle current market challenges, highlighting the need for adaptation and to focus on the client.
“We are undergoing a period of unprecedented change and we must all adapt. We know that one of the biggest challenges we face is the price equilibrium dynamic and we must tackle that. But there is also a reason for optimism as trends over the long term are favourable for the industry.”
Arora concluded that he was confident on the prospects for the global reinsurance sector. “It is a difficult time for our industry as we enter a new era. It will require all of us to have the courage to address the short-term dynamic and the vision to succeed in the long term.”
In the final presentation, Charles Goldie, CEO, Property & Casualty, PartnerRe, remarked that M&A activity would be driven by the demands of the buyer. “M&A in the reinsurance space will eventually go where the buyers of reinsurance want it to go,” he explained.
“Increasingly, we see the buyers of reinsurance looking to concentrate their relationships with a smaller number of core reinsurers that they can consider as both capital and strategic partners. Ultimately, this points to both further consolidation in the number of truly global reinsurers as well as need for dedicated, independent reinsurers that have the ability to be strategic partners on a meaningful scale.”