Reinsurance is well positioned to deliver on the purpose of protection

EY’s Isabelle Santenac on the rising demand for reinsurance.

Faced with rising demand in the wake of improved financial performance (fuelled by underwriting success, pricing power and strong investment returns), the global reinsurance industry is having “a moment”.

But increased risk volatility – especially related to climate and cyber – and more complex dynamics in the primary insurance market present long-term challenges that forward-looking leaders are already preparing for.

For reinsurers looking to maintain the strong recent track record and help fill glaring protection gaps around the world, the industry’s historical purpose can help set the strategic course for the immediate term. A fully integrated global approach in managing and growing their unique books will also position reinsurers for continued success.

The origins of increasing demand

More severe and frequent natural disasters occurring in more places and proliferating cyber attacks are sparking demand for reinsurance. Some estimates project the need for tens of billions of dollars’ worth of additional capacity. Inflation is playing a role. But the fundamental driver of demand is the underlying need for individuals, families, businesses and communities to protect themselves against expanding and intensifying risks.

This clear and promising growth signal is attracting a wider range of capital providers and boosting the confidence of industry leaders. But widespread uninsurable risks are a reminder of why continued diversification and prudent underwriting are critical to future success. The main goals must be achieving and maintaining underwriting discipline to drive intrinsic value in the overall book of business.

Beyond better combined ratios, strong underwriting also facilitates proactive risk prevention. Over the long term, reinsurers can add value by offering technology-enabled risk insights and innovative new products and services. Clients are showing more interest in such advanced and predictive solutions, and alternative capital providers want to invest in them.

By helping customers (and their customers’ customers) understand the nature and scope of the risks they face, reinsurers can help shape policy discussions. Engaging regulators is critical now because of the increasing realisation that government backstops and bail-outs are not economically viable and that new types of public-private solutions will be necessary to address the most volatile risks.

The value of global integration

Reinsurance has long been a globalised business, especially for the largest, multinational brands. But even regional players benefit from thinking globally, because of interconnected macroeconomic risks and the way natural catastrophes transcend borders. Firms looking to expand geographically or engage clients in new markets need deep and clear insight into unique market conditions and regulatory requirements in specific regions.

Looking at the impacts of the macroeconomics trends and global risks on local markets, the EY insurance team decided to unify our specialty insurance and reinsurance operations around the globe. Our specialists in the US, UK, Europe, Bermuda and the Asia Pacific region now function as one integrated team. Because there’s no consideration of one market on its own, reinsurers need both global reach and local knowledge.

Few, if any, executives think longer-term than reinsurance leaders. That orientation will serve them well in prioritising their near-term strategic planning and investment decisions in what will continue to be a dynamic and compelling market in the years to come.

Isabelle Santenac is EY global insurance leader