Technological progress is accelerating at a rapid pace and with it are the risks and opportunities that accompany those changes in many different segments of our economy:
Posts Tagged ‘Reinsurance’
(Re)insurers are being challenged as the regulatory environment becomes more complex, with regulation increasing considerably at multiple levels in numerous jurisdictions throughout the world. Insurers are facing new costs and pressures in their efforts to manage the regulatory landscape.
Globalization in the insurance industry has historically been characterized by North American companies seeking to expand their business models to Europe, with Asia and South America as their secondary focus. European companies have sought to expand into North America, Asia and Latin America (for Spanish and Portuguese speaking companies).
While the alternative capital entering reinsurance markets has spurred transactions in accordance with the anti-correlation theory, other investors that have entered the market via acquisition of businesses have certainly blurred the theory’s parameter of the required level of underwriting margin.
Disruptive Forces to M&A Activity: Alternative Capital Directly Supporting Increased Market Competition
The flow of alternative capital into the reinsurance markets has been sustained and substantial. The growth of this capital, coming from a number of sources, including fund managers and sidecars, has been a staggering 22 percent - compounding since 2008 and accelerating to 34 percent during the period 2012 to 2014. There was a consequent rate softening, mostly felt within the reinsurance landscape, particularly in short tail lines. The softening then trickled down into the specialty insurance classes.
Andrew Beecroft, Managing Director, GC Securities*
New capital inflows, excess capacity and benign catastrophe loss activity have contributed to falling (re)insurance prices and a challenging environment for specialty (re)insurers. These combined factors have been the rationale for predictions of a wave of market consolidation, which appear to have become a reality during 2015 as a series of rumors and announcements grabbed the headlines.
In the wake of the global financial crisis in 2008, significant regulatory change aimed at preventing/mitigating future crises was implemented. While the U.S. insurance regulatory framework did remarkably well in the protection of insurance consumers and companies in the United States during the financial crisis, it was, and will be affected by these reforms. Today, the results are having a profound impact on companies’ balance sheets and risk management practices. Although primarily aimed at larger, global insurers, the changes are so extensive that they may impact medium and small insurers to some extent. The question that most (re)insurers are asking today is how can they cope with the myriad regulatory, legislative and ratings changes and continue to maximize opportunities and maintain profitable growth.
Frank Achtert, Managing Director, and Markus Mueller, Senior Vice President, GC Strategic Advisory℠
After a long period of discussion and many delays, the new European insurance regulatory regime, Solvency II, will commence in January 2016. The rules will be compulsory for all insurance and reinsurance companies and groups in the European Economic Area. The Solvency II rules were developed over a period of more than 15 years, and there are many reasons for the long delay. Two notable reasons are differing business models from country to country and pressure on long-term guarantee products in the private pension system created by the low interest rate environment.
Fiscal constraints are increasing across many developed and emerging economies amid growing catastrophic loss potential brought on by the geopolitical climate, demographic trends and global climate change. As a result, heads of government, international trade organizations and private sector risk bearers are increasing their calls to reexamine the roles and responsibilities of society to better manage these complicated risks.