Reinsurers acting as insurers see a dual advantage from moving in closer to the risk, as they benefit not only from higher returns without so many middlemen, but also from receiving full insight into how both insurance and reinsurance lines of business operate.
Gregory Hendrick, property/casualty president of XL Catlin, said he sees a “big advantage” to operating in both markets as “it gives you full insight.” He added; “there’s no magical number for the mix. Right now were at about $10 billion in gross written premiums for primary insurance and around $4 billion for reinsurance. I don’t have a preconceived notion of what the proportion should be,” as quoted by the Royal Gazette.
For both reinsurers and insurers, it’s a game – egged on by a market characterised by overcapitalisation – of zig zagging across both lines of business to increase returns.
For reinsurers, this means operating as insurers – often with the help of insurtech start-ups, but for primary insurers, this can mean playing cards of increased risk retention.
“We are seeing a trend of reinsurers moving into the direct market. Historically, reinsurers were reluctant to do this for fear of being seen to compete for business with their reinsurance customers,”said Nigel Brook, partner with insurance law firm Clyde & Co LLP, the Royal Gazette reported.
Brook added reinsurers “face a number of headwinds” in the current environment, “given these conditions, many reinsurers are looking to hedge their bets and write direct.”
For both reinsurers and insurers, innovation is driving a change from standard ways of operating, and both players are becoming more comfortable with making visible headway into both lines of business.
Reinsurance giant Hannover Re recently demonstrated its appetite for greater insurance capacity through its insurance expansion after acquiring Argenta and its Lloyd’s syndicate; insurance premiums now make up almost 1o % of the firm’s total property/casualty book.
But challenges for reinsurers remain significant, as moving into primary markets requires detailed knowledge of local regulations and also often translates into needing larger underwriting teams, so businesses are left to carefully juggle the additional time and effort spent with potential higher yields.
According to the Royal Gazette, Clyde & Co’s Brook noted reinsurers are accustomed to writing international business on a cross-border basis but “when it comes to direct business, local regulations make this much more challenging.”
But for reinsurers, some industry experts concede, operating as a primary insurer, despite its challenges, gives insights into where new lines of business might be opening up, and where market profitability is beginning to dry out hence increasing reinsurer’s competitiveness beyond first-glance market expansion goals.