Global insurers in a quandary

• Tried and tested business models are underwhelming the capital markets despite the robustness of the global reinsurance industry
  
• PwC research suggests there is little consensus in the market over how to respond to new needs and challenges
  
• A potential divide is emerging between European and US/Bermuda-based firms
  
• Agility and adaption will be the watchwords for future success

A divide could be emerging within the global reinsurance markets on whether a fundamental overhaul of reinsurers' business models is needed following the financial crisis, according to a new report just released by PricewaterhouseCoopers LLP (PwC).

The report, compiled from in-depth interviews with senior executives of leading P&C reinsurers in Europe, Bermuda and the United States, revealed a contrast between how European reinsurers are responding to the financial crisis, compared to those based in Bermuda or the US.

The paper suggests the majority of European reinsurers have already begun implementing substantive adjustments to their strategy. These adjustments included plans to change the way they do business; with some going as far as to say they were repositioning the risk transfer proposition as they analysed the emerging changes in the market. In comparison, in the US and Bermuda, most executives said their fundamental business model had not changed as a result of the financial crisis, signalling diverging strategic directions for the global reinsurance industry.

Achim Bauer, partner, PricewaterhouseCoopers LLP, said: "The global reinsurance market has proved its resilience but dramatic changes in the global risk landscape mean there are more obstacles and opportunities to come. Reinsurers need to stand out in the face of limited growth prospects and continued market uncertainty - all while trading at depressed book value."

While participants agree the reinsurance marketplace has generally 'held the line' as the overall market has softened, they identify the biggest threat is companies failing to maintain underwriting discipline in an increasingly competitive environment. Most claimed that underwriting discipline was always a priority; however, there is now a renewed focus on improved underwriting controls due to the financial markets.

Arthur Wightman, partner, PricewaterhouseCoopers Bermuda, said: "As companies no longer see the investment returns of a few years ago, managing both sides of the balance sheet has never been more important. Given the constantly evolving landscape of risk, successful business models will be nimble to changes in demand and new opportunities. They will consistently define and execute the full risk transfer proposition to an entire spectrum of stakeholders, including customers, investors and regulators."

Alongside widespread concerns that current pricing and the soft market were not sustainable, reinsurers also cited continued equity market volatility, inflation/deflation, interest rates and lack of growth as key challenges facing the industry. Added to this, many respondents raised questions over whether some companies would be able to re-load following a large catastrophic event.

Bauer continued: "Reinsurers have a real opportunity to focus on re-establishing and repositioning the economic value of risk transfer. Those companies that focus on strong leadership, anticipating future trends and assessing demand in the evolving global risk landscape will ultimately emerge on top."