A well established knowledge base, international presence, and an ability to partner with local players puts reinsurance companies in a better position than primary insurers to reap the benefits of increasing global insurance penetration, according to rating agency Standard & Poor’s (S&P).
According to analysis from S&P growth in emerging economies has slowed in recent years and, at the same time, although insurance penetration in emerging regions remains fairly low, it is on the rise.
“The compound effects of economic improvement (at a lower rate) and increasing insurance penetration provide opportunities for growth,” says S&P, continuing to explain that global reinsurers are likely best placed to capitalise on the opportunity.
The reinsurance industry remains soft and challenging, with intense competition and an abundance of capacity from traditional and alternative sources driving persistent rate reductions across the sector.
Global reinsurers are increasingly looking to diversify and expand into new peril regions, and the global protection gap (disparity between economic and insured losses post-event) and entry into emerging economies is a promising avenue for firms, providing access to diversifying and new exposures, while making much needed insurance protection more available to vulnerable people in underdeveloped parts of the world (which are often very susceptible to a range of natural disasters).
S&P highlights the desire to expand into new regions and suggests that reinsurers are best equipped to do so in the marketplace.
“In response, many global reinsurers have incorporated these emerging economies in Latin America, the Middle East, Africa, and Asia-Pacific into their growth and diversification strategies.
“Due to their global scope and knowledge base and their ability to partner with local carriers rather than compete with them, we believe reinsurers are better placed than many primary insurance peers to benefit from increasing insurance penetration globally,” says S&P.
Being able to participate in an emerging economy via a local partnership is a benefit to reinsurers when compared to establishing a local branch and having to compete with local players, which is often the route primary players must take.
However, it’s worth noting that some emerging regions, such as India, recently made regulatory changes that enables foreign reinsurers to launch a regional branch in order to access the marketplace, although as can be the case with such regulation, there are measures in place that favour Indian reinsurers over foreign players with a local branch.
“Over the longer term, we believe reinsurers are well positioned to support increased insurance penetration in developing markets.
“The improvement in the developed economies could somewhat boost the reinsurance sector’s premium growth in 2017. However, continued pricing pressure in a competitive environment would likely limit growth,” says S&P.
