During PartnerRe’s first 25 years as a reinsurer, everything has changed and nothing has changed. From its roots as a pure catastrophe player, PartnerRe has dramatically evolved–or diversified–over the years.
PartnerRe was one of the new breed of catastrophe reinsurers that set up in Bermuda after Hurricane Andrew in 1993. Today, its property-catastrophe business represents up to 5 percent of net premium, while life and health reinsurance is close to 25 percent of premium, affirmed Emmanuel Clarke, president and CEO of PartnerRe Ltd. and CEO Specialty. (See related article for Clarke’s leadership lessons.)
In the early days of PartnerRe’s existence, property-cat premiums provided profitable returns in the double digits, Clarke recalled. But with the influx of traditional and alternative capital, and a large number of competitors, the margins have been compressed and profits are lower, he said.
While cat reinsurance used to be one of the biggest contributors to earnings for the reinsurance industry, now it’s a commodity, one class out of many, Clarke said. PartnerRe’s major profit contributors are and will continue to be generated from classes where there are more barriers to entry, where it’s more difficult to jump into the market, particularly for alternative capital players.
Clarke described markets with higher barriers to entry as areas where tremendous expertise is needed, where there is product complexity, both in terms of structures and duration, and, as a result, there are fewer players. In such markets, PartnerRe’s “expertise gets paid for its value proposition, and “that’s where we like to play,” he said.
He pointed to property or motor excess-of-loss treaty business in Europe or Asia-Pacific as a market where 70 to 100 companies are writing business. “If you do some longevity business in the U.K., if you write some cyber business in the U.S. or if you do some agricultural business in other parts of the world, then you’re down to a handful or a dozen players. That makes a huge difference,” he said.
Today’s customers look for support for their growth with customized solutions, he said. “They’re not looking for standard, one-size-fits-all solutions.”
Clarke said its life, specialty and property/casualty teams are “quite decentralized and there’s a lot of empowerment of the teams to actually identify opportunities within each unit.”
Within its specialty team, there are four units: agriculture; aviation; financial risk; and property, marine and energy. “Each one of these four units are constantly on the lookout for new forms of risk, emerging risk or risk that has seen some dislocation, and where it is a good time to enter,” he said. “We entered the U.S. mortgage space in 2013. At that time, we were one of four companies sharing the business, and the returns were pretty high. I think today there are 40 reinsurers competing for the business.”
“Being the first one, among the first ones, definitely gets rewarded. To be the first one, you need to have teams of experts who are empowered, and you need to have a very agile and nimble way of working so that you can make these decisions to go big in some classes fairly quickly,” he said.
Clarke said PartnerRe is growing faster in life than in non-life reinsurance “because we are seeing opportunities. We have a good platform we can leverage.”
Last year, PartnerRe acquired a Canadian life reinsurance company called Aurigen Capital, which is helping PartnerRe penetrate the North American market. “Because we’re a small player in life, there’s an enormous amount of potential growth for us stemming from that business,” Clarke said. In June, the company acquired Claim Analytics, a Canada-based provider of predictive modeling solutions to the life insurance industry in North America.
In September 2017, PartnerRe announced a strategic cooperation agreement with RemitRadar, a London-based money transfer specialist, to capitalize on RemitRadar’s money transfer ecosystem, web presence and social media channels, including artificial intelligence and deep learning technologies, to develop digital insurance solutions for PartnerRe’s clients in new and existing markets. With this arrangement, PartnerRe is providing its insurance clients access to a new distribution channel, Clarke explained.
Another partnership was formed in February 2018 with Farmers Edge, which provides “precision farming,” or real-time field data for farmers and their insurers. “It makes the insurance product to farmers much more attractive, much more interesting, by combining the data and the technology to insurance and reinsurance products,” Clarke explained.
“It’s enabling us to leverage technology, bring it to our insurer clients and get people who were not insured before to buy insurance going forward–thereby helping to close the protection gap.”
Clarke strongly believes that PartnerRe’s ability to be nimble in a competitive market has been enhanced by its 2016 acquisition by EXOR, the Italian investment company and owner of Fiat Chrysler.
“Reinsurance is a volatile business. We take away volatility from our clients, and we put it on our balance sheet. That model lends itself well to private ownership, where you actually focus more on long-term value creation than you do on accounting mechanics over the next quarter,” he said.
A private ownership model “can nurture and support client relationships over long periods of time,” Clarke said. “Our clients know that we are backed by [an] owner who will be around for many years to come [that] has the appetite for reinsurance as a volatility-transfer business.”
Another benefit: “A private company can operate with a simpler model — it’s lighter, leaner, quicker, with more efficient governance, compliance and reporting than a public company. It helps us be nimbler than some larger public company peers.”
Although PartnerRe wrote a limited amount of professional indemnity insurance between 2013 and 2016, it decided to exit that business in 2016 when it was purchased by EXOR, returning to its roots as a pure-play reinsurer.
“We don’t do direct insurance. So as a company that only writes reinsurance, we can focus 100 percent on creating reinsurance solutions for our clients that will help them to manage their volatility, optimize their capital or innovate for growth,” Clarke said. “Our view is that you can’t be both a partner and a competitor. Our focus on reinsurance business gives us the ability to serve our clients unreservedly, without competing with them.”
Clarke added: “We’ve seen a number of our competitors actually moving away from reinsurance to get into insurance as a form of diversification of distribution channels. We don’t think this is a good recipe for success.”
He said there’s a great future for professional reinsurers because demand and opportunities are going to rise, despite the competition and abundant capacity.
“The reinsurance winners will be those that help their clients to succeed through reinsurance solutions that both leverage their capital and expertise, while harnessing new forms of capital and technology.”
In an increasingly complex and interconnected world, expanding risks such as pandemic risk, driven by globalization, and emerging risks such as cyber, driven by the rapid pace of technological advancements, mean that reinsurers are better placed as the ultimate holders of risk, he said.
“It will be increasingly important to have strong reinsurers at the end of the risk chain. The key to success for PartnerRe — and its customers — is to respond quickly to the evolving risk landscape,” Clarke said.
“The winning reinsurance model is one that is dedicated to helping insurance companies succeed. For that, you need to embrace and harness data and technology,” Clarke added. PartnerRe’s new Claim Analytics helps life insurers study, model and detect fraud in disability claims.
Clarke said his biggest challenge as CEO is keeping on top of the constant evolution within the business — about how “you make your company better and better every day.”
“This means keeping in mind that what has worked in the past may not work in the future, and then constantly steering the company to where its value proposition is rewarded. Reinsurers need to constantly adapt and anticipate our clients’ needs,” he said.
Without customer centricity, “you can lose touch with the benefits your products provide,” he said. That’s why a big part of his role is meeting clients. “I really enjoy doing this, and I always take a lot away from our client meetings in terms of what’s on their minds, what their concerns are … and what strategies they are pursuing. This helps us understand that what we provide is in sync with their agenda.”
Culture of Innovation
It’s also the CEO’s job to foster a culture of initiative and innovation, Clarke said. “If you have a culture of initiative, you will have innovation. I don’t believe in ivory tower research and development (R&D) teams who sit in a corner, unconnected to the business owners. Innovation has to come from people who lead the business.”
“The responsibility of leadership is to set the conditions, so that people will feel safe and encouraged to actually take some measured risk,” he said.
The reason for such innovations, and for partnerships like Remit and Farmers Edge, is to grow where new opportunities exist, and to pull back when competition gets too intense.
Clarke is pleased with the progress the company has made growing its specialty book and contracting its cat book, “which proved to be the right call and explains our outperformance in 2017.”
“In 2017, a year of big catastrophes around the world and probably the costliest year on record when it comes to cat losses, we had one of the best results out of all the reinsurance companies, with a combined ratio of 103 percent,” he said. “It was a significant achievement.”
PartnerRe has done a lot “to establish its vision, conjure a strategy, bring in new talent and improve efficiencies. There’s been more change during the past two years inside PartnerRe than there’s been during the past 10.” PartnerRe began as an answer to a need, as a pure cat reinsurer in 1993, when ceding companies were clamoring for capacity.
Today’s clients still need cat capacity to smooth volatility, but Clarke said they also want long-term reinsurance partners These partners would help provide customized solutions and help customers grow their business by developing products in new and old markets.
With such customer focus, PartnerRe will be celebrating its 50th anniversary in another 25 years, he said.
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