Coverage of new risk types, use of analytics key to reinsurance competitiveness: report

Reinsurance companies using advanced capital and risk modelling, have access to the capital markets and use their client data for pricing and risk management will be among the most competitive as the industry faces challenges over the next several years, notes a new report from PwC.

 Low interest rates and the “fresh surge of capital” in the insurance-linked security market, are key ongoing challenges for the reinsurance sector, the report, Reinsurance 2020, suggests.

“The key to success is going to be keeping one step ahead of the market by sustaining an edge in analytics, innovation and the development of new markets and the coverage of new risk types,” PwC suggests.

As the ILS market grows, “the key question for sponsors is how to develop untapped markets rather than cannibalizing existing reinsurance demand,” the report notes. “As more capital moves into the market, investors may need to accept new risks or more extreme risks to maintain their target yields.”

PwC’s report lays out several other attributes companies will need to remain competitive.

Among them, the company says that the most competitive companies will have “sufficient local presence in the major markets,” use advanced capital and risk modelling and write both direct and reinsurance business.

The company also points to what it calls “underpenetrated markets” in South America, Asia, Africa and the Middle East (SAAAME). Those markets have challenges as well, and reinsurers entering those markets will have to take “proactive steps to build up the necessary data and modelling capabilities on the ground,” the report says.

It also argues that those headquartered in or that have subsidiaries in “tax and regulatory efficient domiciles,” will be strong competitors, as well as those with access to the capital markets.

PwC adds that competitive players will also “be innovators on product and risk type, providing real-time reporting of claims and risk management tools that best meet clients’ underlying needs.”