Traditional reinsurers must remain relevant in order to survive challenging market dynamics, but stay mindful about which areas they diversify into, according to Paddy Jago, president of Willis Re in a video blog on WillisWire.
Jago takes the view that the reinsurance market is in the greatest state of flux that he has ever seen over his 35 year career in reinsurance.
“So what do you need to be to survive?” he asks. “Well, if there’s one thing I’d advise all reinsurers to be at the moment, it is to remain relevant. To be relevant, your number one priority is to have a high degree of expertise. That matters above all else.”
Second, size matters. “I think you have to be of a certain size.”
Lastly, reinsurers need to have relationships in place in the reinsurance market.
“These three things will dictate whether you remain meaningful in the reinsurance business in the future,” he says.
As traditional property catastrophe reinsurers experience increased competition from the influx of capital markets capacity, some will diversify into other lines of business. Those doing so should proceed with caution, Jago warned.
“What concerns me is that you’ll have markets going into areas where they have no idea what they’re doing,” he said. “For me, the broker, maybe that will be a pot of gold, because I’ll have a market who is unable to rate the risk commensurate with the exposure.
“But if they don’t understand what they’re doing they could end up exacerbating their problems, and instead of growing their top line – which is the reason they’re entering new markets in the first place, they could end up exploding their bottom line,” he added.
Source: Willis Re