Rethinking Reinsurance

Growing uncertainties in the global economy and the increasing occurrence of natural disasters has increased the importance of reinsurance in recent years. According to Timetric’s new foresight report, these are the trends to watch. 

Reinsurance hubs will profit from growth in the global insurance industry

Growth in insurance segments such as life, non-life and personal accident and health insurance is expected to fuel the growth of reinsurance – as direct insurers cede proportions of their written premiums. Although the developed insurance markets were affected by the financial crisis from 2008, many recovered and recorded growth following the recession. This was driven by increases in infrastructure investment and domestic demand. In the same period – despite the financial crisis – emerging economies such as China and India recorded strong growth, and are expected to grow further towards 2020.

Overseas markets remain major revenue generators for reinsurers

Reinsurers operating through hubs generate most of their revenues from offshore markets, meaning that the domestic reinsurance markets in hubs such as Singapore, Bermuda, Switzerland and Hong Kong are very small. Singaporean reinsurers generate more than 90% of their revenue from overseas markets such as Japan, China and South Korea. Most reinsurers set up offices in reinsurance hubs due to favourable regulatory and tax structure, and also to gain access to neighbouring markets. The report finds that while reinsurers operating from Bermuda cater to demand from North and Latin America, reinsurers from Switzerland and Singapore serve European and Asia-Pacific markets. However, reinsurers based in the world’s largest reinsurance market, the US, primarily focus on domestic business.

Solvency II to change the dynamics of insurance and reinsurance

The past years global economic uncertainties have meant more regulation of the financial services sector. New regulatory standards, including risk-based solvency and capital requirements, were introduced in many countries’ insurance industries. In January 2014 members of the European Union will implement new Solvency II standards. As a result, many insurers and reinsurers will be forced to restructure and strengthen their capital and risk exposure. The implementation of Solvency II is expected to lead to significant growth in the reinsurance industry, as consolidation through merger and acquisition activity will increase, and less financially sound insurers will seek assistance and support from reinsurers.

 Product innovation will be key priority for reinsurers

Reinsurance is a highly competitive industry, and most major markets are served by a number of local and international reinsurers. Product differentiation, gaining competitive advantage, profitability and increasing market share are the primary challenges for reinsurers. To increase business and take advantage of new market opportunities, reinsurers will uphold flexible product mixes and add new products to their portfolios. Leading reinsurers such as Munich Re and Swiss Re have started to provide Solvency II solutions and services, including special Solvency II consulting services.

Timetric’s report; ‘2020 Foresight: Reinsurance hubs’ was published on the 8th April 2013.