October 14th, 2013

Capital Stewardship Option: Organic Growth

Posted at 1:00 AM ET

With an abundance of excess capital, negligible growth in global reinsurance spend and the pricing outlook continuing to soften, one of the biggest challenges facing reinsurers is deciding how to deploy this excess capital to generate a return that meets or exceeds the expectation of investors or shareholders. Today we consider the option of organic growth.

Organic growth is often perceived as being the low risk growth option. However, this is difficult to achieve in the current economic environment. Figure F-7 shows the inherent correlation in mature markets between gross domestic product (GDP) growth and insurance premium spend. In the current weak macroeconomic environment, the outlook for (re)insurance premium spend in mature markets is expected to continue to be benign. Even with a disciplined underwriting approach, the current excess capital available in the reinsurance market and increased competition from convergence players means 2013 will likely see more risks being assumed for the same, if not less, return than 2012. These challenging market conditions make accretive organic growth opportunities in mature markets very limited.

 

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When deciding on a growth strategy, managements need to take into consideration a number of issues in determining whether organic or acquisitive growth is most appropriate. In reality, a combination of both is likely to feature in the most successful strategies, with decisions made on an opportunity-by-opportunity basis. Figure F-8 highlights some of the key considerations when developing a growth strategy.

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*Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities Corp., a US registered broker-dealer and member FINRA/NFA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Securities or investments, as applicable, are offered in the European Union by GC Securities, a division of MMC Securities (Europe) Ltd. (MMCSEL), which is authorized and regulated by the Financial Conduct Authority, main office 25 The North Colonnade, Canary Wharf, London E14 5HS. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities Corp., MMC Securities (Europe) Ltd. and Guy Carpenter & Company, LLC are affiliates owned by Marsh & McLennan Companies. This communication is not intended as an offer to sell or a solicitation of any offer to buy any security, financial instrument, reinsurance or insurance product. **GC Analytics is a registered mark with the U.S. Patent and Trademark Office.

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