January 22, 2020

Global Performance & Importance – P&C Reinsurers – 2019

Hardening, the long way

Feedback from the 1.1.20 renewal indicates that rates were either stable or slightly up across all lines and a global scope. Property Cat rates moved upwards only slightly, while a broad secular hardening is slowly taking place in Casualty lines.

At face value, this might be better described as a flat market (rather than a hardening one), although beneath the surface the fundamentals have shifted.

Firstly, insurers have led the way with price increases, particularly in commercial lines and also parts of retail portfolios (particularly Auto in the USA and the United Kingdom).

Secondly, insurer expectations of twelve months before were in the large majority anticipating increases, with Europe being the only exception.

Exhibit 1 – Insurers were alert to a changing environment


Source: NMG Consulting – P&C Reinsurance Study – 2019


Finally, while capacity proved to be available in almost call cases (which would not be the case in a genuinely hard renewal season), the effort required to establish pricing consensus was markedly greater.

Nevertheless, while historically high capital levels remain largely unchanged, reserve redundancies have been mostly if not entirely eroded and the low-yield environment means that returns are necessarily reliant on underwriting performance.

Shaping forces

The digital world continues to expand its reach and capabilities. 2019 was the year when ‘Technology advancement and Innovation’ became the leading challenge globally for insurers, gripping the markets of Germany, China, South Korea, France, the UK, South Africa and Australia (in particular).

2017 and 2018 were among the largest claim years on record from natural catastrophes, and concerns grew further in 2019 (despite it ultimately being a lower loss year). The prospects of a US$150b loss year must surely continue to shorten, and the Australian bushfires will further raise awareness that the effects of climate change are a current (as opposed to future) issue. Losses due to cyber fraud continue to escalate, with ‘Cyber’ most-often considered the leading ‘emerging’ risk on a global basis, particularly in Continental Europe where awareness is highest.

Concerns about pricing and capital levels eased in all major markets, although remain the next-to-most prominent challenge overall and in most markets.

Exhibit 2: Technology advancement and Innovation takes centre stage


Source: NMG Consulting – P&C Reinsurance Study – 2019


Growth

The wisdom of the crowd: The views of a broad sample of individuals is a better statistical predictor than those of a single expert.

With this in mind, nearly 1,800 people at insurers shared their views on the growth outlook for their company in their country. This produced a healthy growth outlook of 7% globally for the non-life insurance industry, lifted in part by repricing in several markets and linked also to the prospects for general economic growth.

Exhibit 3: Asia remains the insurance industry’s engine for global growth


Source: NMG Consulting – P&C Reinsurance Study – 2019


Eight global brands

Brands confer competitive benefit in reinsurance.

Our ratings and rankings for Brand Strength are derived by factoring the unprompted views of insurers and reinsurance brokers as to the “most well-regarded brands”, partner preferences and also specialist recognition within lines of business (across more than 30,000 datapoints).

‘Best-regarded’ reinsurer brands clearly correlate (positively) with scale and competitive position, but vary significantly between reinsurers with similar levels of market importance.

Reinsurer brands can be categorised between Global, Regional, and Local. Eight brands emerge from the analysis as being genuinely Global, successfully carrying their value statement across all regions.

Exhibit 4: Top 50 brands – Global


Source: NMG Consulting – P&C Reinsurance Study – 2019


Click through to Brand Strength Rankings to learn how these vary across the world’s major regions.

Competitive positioning – Reinsurers

Of the major globals, Swiss Re received the highest ratings from insurers on NMG’s Business Capability Index (ahead of Munich Re and Gen Re), and also (more narrowly) from reinsurance brokers (ahead of Hannover Re and Lloyd’s).

Of the major regionals, TransRe was top-rated by insurers, while RenRe received the highest ratings from reinsurance brokers.Value attributes rank highly in reinsurer selection, especially ‘partnership’, ‘ease of doing business’ and ‘timeliness’ (all of which are notably higher rated than underwriting capability). Nevertheless, the greatest sources of differentiation between reinsurers are to be found in their client teams, underwriting, thought leadership and innovation.

Exhibit 5: Business Capability Index – Global


Source: NMG Consulting – P&C Reinsurance Study – 2019


Alternative capital

As a non-correlated asset class, portfolios of insurance risks are set to hold permanent appeal to investors, notwithstanding the significant loss years of 2017 and 2018.

Insurer demand for alternative capital solutions is also robust, with the balance of expectations firmly in favour of expanded application in developing markets as well as advanced economies.

In the world’s advanced markets, specialist providers of alternative capital are dominant, especially in the USA and UK. Continental Europe, home to the bulk of the world’s global reinsurers, stands apart with reinsurers overwhelmingly considered the leading facilitators of alternative capital solutions. Global reinsurers hold dominant positions as providers of alternative capital solutions in the regions of Asia and Latin America.

Exhibit 6: Alternative capital going mainstream, and global


Source: NMG Consulting – P&C Reinsurance Study – 2019


A commodity, far from it

Despite the existential issues raised by the levels of competitive intensity within the P&C reinsurance segments, they are also diverse with many points of competitive diversification available.

Beyond specialisation at the line of business level, our Study highlights that there is a rich topography of points of competitive differentiation at the customer interface with insurers, reinsurance brokers and across markets. This is a positive signal for an industry often considered transactional and commoditised, but also suggests that only one-half of the universe of differentiation opportunities are currently not claimed.

Exhibit 7: Lead reinsurers by factor (Treaty business)


Source: NMG Consulting – P&C Reinsurance Study – 2019


Mark Prichard is the CEO of NMG Consulting based in Sydney (Mark.Prichard@NMG-Group.com)

Jane Cheng, Partner based in Sydney (Jane.Cheng@NMG-Group.com)

Rick Flaspohler, Partner based in Kansas City (Rick.Flaspohler@NMG-Group.com)

See Siang Cha, Data Scientist based in Sydney (SeeSiang.Cha@NMG-Group.com)

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