Where is Reinsurance Headed in 2017?

I recently attended a roundtable event in Bermuda with other reinsurance executives from around the world to discuss what’s shaping the industry, where the industry stands now and what trends are on the horizon.

This year’s roundtable engaged executives from Ariel Re, Aon Benfield Bermuda, Tokio Millennium Re, Appleby, Hiscox Bermuda, Horseshoe and Xuber. While many of the themes were similar to those discussed in 2015, the group shared updated opinions on trends like mergers & acquisitions, soft market conditions, technology adoption and regulatory changes, and identified technology as the most powerful tool as the industry tries to navigate a handful of business challenges.

Roundtable participants also discussed soft market conditions, increased competition from third-party capital and the ongoing wave of M&A activity as obstacles the reinsurance industry faces. However, although M&As are challenging due to the complex integration of systems and company cultures they entail, participants also considered them a major opportunity for businesses to adopt the best technology and streamline future processes—giving newly merged companies a leg up on the competition.

Even though the reinsurance industry faces many challenges, the group came away with a positive outlook on the industry. More companies are embracing technological advancements, which shows major progress in this competitive market. It’s common knowledge that the insurance industry has been slow to change, but it appears we have finally reached a tipping point and reinsurers are now in a race to get ahead.

While many have previously shied away from big technology investments due to the soft market, companies are now seeing the benefits of better technology systems. Kathleen Faries, head of Bermuda for Tokio Millennium Re, made an astute observation: “The ones that will ultimately win are going to be the ones that are able to be nimble and evolve their operating platform. Change is coming, change is already here, so we have to try to adapt as quickly as we can.”

What trends should we plan for as 2017 approaches? Most participants in the roundtable were optimistic and believe we have hit the bottom on rate deductions, noting that pricing declines had slowed and will continue to plateau into the New Year.

Many felt that we have still yet to see the full impact of M&A activity over the last few years and will finally feel those effects in the coming year. Due to acquisitions, many companies have bigger balance sheets and squeeze some of the smaller players by lowering rates, which creates a more challenging environment.

Finally, we’re likely to see the insurance-linked securities (ILS) market continue to grow. Despite the current soft market, ILS has been finding its way onto new programs and risks. But when a big loss occurs, how will ILS capacity respond, since it hasn’t been tested in the wider market? Damien Smith from Hiscox Bermuda noted that a close and transparent relationship with capital providers will be necessary as we begin to navigate this space.

Richard Clark is business development director at Xuber, a provider of insurance software solutions that offers products and services to more than 180 brokers and carriers in more than 46 countries worldwide. Xuber is part of Xchanging, a CSC Company.