October 29, 2014

PwC’s Reinsurance 2020: Take control of your destiny

Reinsurers with undifferentiated `me too’ strategies could be squeezed out of the market. Which business models will be viable in five years’ time and what steps do you need to take to position your business out in front?

Reinsurers are facing a threat to their relevance. Mid-sized generalists could be particularly vulnerable as customers demand more specialised, creative and finely-targeted solutions from their reinsurers, and brokers respond by placing business with reinsurers with the highest quality or greatest expertise. With limited growth in traditional, primarily developed, insurance markets and a range of disruptive new threats on the horizon, a clear focus on cost, risk insight and innovation is needed to break away from competitors.

The forces driving change continue to intensify since we published our 2013 report. The low interest rate environment is proving especially disruptive, requiring a much tighter focus on underwriting quality and the need to accept more profitable business. Premium rates in many classes of business have also continued their decline and in some cases these falls have been masked by changes to terms and conditions.

Some businesses are clinging on in the hope that a major loss event will lead to a significant hardening of rates. But any rises, particularly within the property catastrophe segment, are likely to be marginal at best as a result in Insurance-Linked Securities (ILS) capacity coming into the market. The next 12 months are set to see even more capital market investment, both directly and through joint ventures with traditional reinsurers. The longer term threat is that organisations will bypass brokers, insurers and reinsurers altogether by simply looking to match their risks to a willing capital market risk takers.

Read the full report: PwC’s Reinsurance 2020

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