Reinsurance Market: Navigating the challenges

Over the past year, the reinsurance market has shown strong performance, with the market enjoying its best underwriting conditions in two decades. Matt Moran, Underwriter, North America Property & Casualty, provides his thoughts on some of the challenges in the reinsurance space and how to navigate them.

We have seen issues in the casualty reinsurance market, which has been grappling with rate adequacy relative to increased loss cost in some lines. One of the primary issues is the persistent upward trend in loss severity resulting from social and economic inflation. The market has responded with rate adjustments, but there is still considerable scrutiny and pressure on rate adequacy, leading to downward pressure on ceding commissions for proportional reinsurance.

On the property side, the increasing number and cost of natural disasters in recent years has driven reinsurance costs up significantly. At the same time, many reinsurers have shifted their portfolios away from non-peak exposures like flood and SCS to make the most efficient use of limited cat risk tolerance. A challenge has been the push and pull between brokers and clients to offer products that provide more earnings protection from catastrophe frequency.

To navigate these challenges, the industry has focused on several strategies. Across the board, the market has become especially disciplined with limits management and thoughtful attachment strategies. In excess casualty, reinsurers are focusing on claims handling not just in their own layers but throughout the tower, demanding high quality engagement from every carrier on a panel. And as always, markets continue to emphasize the importance of underwriting discipline and proactive, transparent dialogue with brokers and clients.

What's impacting the market?

Several new initiatives have made a significant impact in the reinsurance sector. The rise of automation, digitalization, and AI has been a major focus. We have seen some positive results from companies that have developed technology for risk selection for challenging perils like wildfire and flood, and the combination of AI and satellite imagery seems very promising for better property claims-handling. On the casualty side, recent industry sponsored litigation against systemic fraud in construction injury claims is also praiseworthy.

Skills to success

Globalization and technological change are rapidly changing the risk landscape. The modern internet is barely twenty years old, and only in the last ten years have smartphones become ubiquitous globally. In this context, a top performing reinsurance professional needs to stay curious, learn quickly, and nimbly apply risk fundamentals to novel situations. Of course this is all predicated by competence in finance and business basics, solid analytical skills, and perhaps most of all, effective communication and networking.

This topic was discussed in detail with Reinsurance Business, where Chris Sweeney, Managing Editor for Special Reports at Key Media, spoke to Matt Moran and a number of industry experts to discuss the reinsurance market and some of the challenges it faces. You can read Matt's published comments here.