Ongoing soft market conditions major challenge facing global reinsurers: survey

Xuber, an international software house that provides commercial insurance software, has found “ongoing soft market conditions to be the most widely-cited challenge facing the global reinsurance industry in 2015.”

Xuber, part of London, United Kingdom-based business technology and services provider Xchanging plc, released Xuber’s Global Reinsurance Survey 2015 this week, which polled more than 40 senior professionals, including insurers, reinsurers, brokers, industry organizations, lawyers, insurance-linked securities (ILS) investment managers, analytics firms and modellers across Canada, the United States, U.K., Bermuda, Channel Islands, Cayman Islands, Germany and Switzerland.

The findings revealed that 81% of global reinsurers listed soft market conditions among their top five concerns. This was followed by competition from third party capital (66%), and mergers and acquisitions (M&A) (66%), maintaining underwriting discipline (59%) and regulation (46%).

“The reinsurance industry is facing a prolonged soft market, with no signs of it improving any time soon,” Xuber said in a press release. “This issue is being compounded by the emergence of alternative capital flooding the industry in the form of catastrophe bonds and other sources of insurance-linked securities.” [click image below to enlarge]

The survey did, however, find that a variety of opportunities exist “for reinsurers who can adapt to the fast changing market landscape.” Better use of analytics and modelling was cited by 71% of executives as the top opportunity to refine the identification of risk/reward to empower better business decisions. This was closely followed by partnering with third party capital (69%). “Although third party capital was listed as one of the key challenges, reinsurers understand that new investors entering the market do not possess the unique expertise to expertly manage risk,” the statement said. “Consequently reinsurers have a distinct opportunity and advantage over alternative capital.” [click image below to enlarge]

M&A (63%) (also considered a challenge), creating niche market expertise (59%) and using Big Data effectively (51%) rounded out the top 5 challenges. “The current wave of M&A activity, while a threat to weaker reinsurers, is an opportunity for stronger businesses to achieve significant goals through buying other firms which complement their longer term strategic goals,” the survey said.

“Surviving and prospering in the soft market will require companies to operate at optimal efficiency, and their IT systems will be central to this,” said Chris Baker, executive director of Xuber, in the statement. “Only the savviest of reinsurers who recognize that technology can be the catalyst for change will emerge unscathed.”