Beyond borders - Charting the changing global reinsurance landscape

The global reinsurance industry is in a period of profound change that is challenging many long-standing beliefs about buying and selling reinsurance. Critically, these changes are accompanied by stasis in the amount of reinsurance premium available globally, a series of relatively flat market cycles and growing competition from alternative sources of capital. This report is a call to arms, exhorting cedents, reinsurers and brokers to re-evaluate their trading practices and more clearly define their sources of competitive advantage.

There are three main factors driving convergence and increasing competition in the reinsurance market. First, there are regulatory requirements for global equivalence in capital management, leading to greater standardisation in approaches to capital reserving and capital efficiency in both primary insurers and reinsurers.

Second, the growth of vendor property catastrophe models has led to greater standardisation in the evaluation of reinsurance risks in information-rich territories such as the USA and much of the UK and Western Europe. This has had spill-over effects in increasing technicality and search for better information in other classes of business and territories. Cedents, reinsurers and brokers thus need to have greater technical capacity and to take a more analytic approach to all classes of business, breaking down some prior sources of variation.

Third, there has been consolidation in cedents, reinsurers and brokers. While small and medium-sized players remain, a few key players who increasingly transact business on a global scale dominate the market. In particular, consolidation in the primary insurance industry is changing patterns of reinsurance buying. Specifically, global and large regional cedents are centralising their reinsurance purchasing, with shifts in premium from local programmes to bundled global programmes and an increase in central retention. Such changes reduce their proportion of reinsurance spend.

These drivers of convergence have entered a market that was, until recently, characterised by significant cultural variation in the buying and selling of reinsurance. While some variation remains, it is important to take stock of the specific types of differentiation available and how these differentiators can create advantage. At the same time, it is important to question dominant assumptions about opportunism and prevailing myths about long-term business relationships, and traditional concepts of payback. As globalisation, convergence and competition increase, behaviours previously derided as opportunistic are being recast as sensible business efficiency.

It is thus critical for different market participants to re-evaluate their practices in order to remain aligned with this dynamic global landscape. However, there are few evidence-based frameworks available to inform them about the scope of global change or its potential implications for their business. The aim of this report is to outline the key implications of change for insurers, reinsurers and brokers and provide a set of practical tools that will support them in positioning their business in the changing competitive landscape.

This report is the result of a three-year study of the global reinsurance industry, covering the main stakeholders of cedents, reinsurers, and brokers. It examines the implications of profound change arising from shifts in regulation, consolidation in the key players, and increasing competition both within the reinsurance industry and from alternative capital providers. These changes are driving convergence in a market that was, until recently, characterised by significant cultural variation in buying and selling reinsurance. The findings in this report will help industry participants to take stock of their current position in the industry, the specific types of differentiation available, and how these differentiators can create advantage. Specifically, the report provides evidence-based frameworks and models that firms can use to diagnose their existing strategies and structures and consider alternatives.

This report presents the results from a study commissioned by the Insurance Intellectual Capital Initiative (IICI), a consortium of insurance industry organisations. The complete report, created by Professor Paula Jarzabkowski and her research team, can be downloaded from the link below.