Reinsurance market sees challenges, opportunities amid turmoil of 2020

"It's amazing that we're all in decent shape at the end of this," says CEO

Reinsurance market sees challenges, opportunities amid turmoil of 2020

Insurance News

By Alicja Grzadkowska

It’s an understatement to say that 2020 has brought new risks to the forefront for insureds, while introducing new challenges for the re/insurance industry. However, over the past tumultuous 12 months, the reinsurance market has been able to find opportunities to develop business and stay on course.

That’s not to say that the past three years leading up to the pandemic have been smooth sailing. In fact, the reinsurance marketplace has been through a significant evolution during this period that prepared it to weather the storm in 2020 and beyond. Back in 2017, for instance, carriers believed that there was an unlimited amount of capital in the reinsurance market. At that point in time, perhaps this perception was correct, and created a confidence that this premise would always be the case. However, the industry’s 300-year-plus history would point to a much different outcome.

This mindset began to get chipped away at by social inflation trends (although one could argue that it is just a normal market cycle) and multiple consecutive years of natural catastrophes that put pressure on the market, explained Christopher Donelan (pictured), Sompo International’s CEO of Global Reinsurance, adding, “Then this year just blew the lid off it all.” Now, capital providers are more cautious “and that is putting a lot of pressure on performance,” continued Donelan.

Alongside the pandemic – which has led to many insurers struggling to understand what their ultimate losses are going to be – and the potential complex nature of developing business interruption claims, 2020 saw a record year of natural catastrophes globally, including 75+ events in the US alone. There were 30 named storms in North American with 13 reaching hurricane status. Of the 10 costliest natural catastrophes in 2020, six occurred in the US, making this the most expensive extreme weather (wildfires, tropical cyclones, tornados, and hailstorms) year on record for the country. This environment has had a particularly resounding impact on reinsurers as the underwriting business has had to look at risk a little differently than they probably are used to.

“If your plan was to be a growth reinsurer or a retrenching reinsurer, suddenly, in March, April, and May, you were able to accomplish either one of those goals in a relatively quick manner. If you were retrenching, there were opportunities to get off business; if you wanted to grow, there were opportunities to get on business,” explained Donelan, noting, “A pandemic alone would have been a challenge … so it’s amazing that the majority of the industry is in a decent place as the pandemic evolves.”

Looking ahead into 2021, Donelan doesn’t see just one area or line of business that’s poised for growth or that reinsurers should focus on. Instead, he says, “It’s case by case, deal by deal, company by company, and how as a reinsurer you want to grow with key partners … For example, if you didn’t have a solid company presence in the US or anywhere else in the world before, you now have a chance to become stronger from a relationship standpoint, which means the opportunity to participate in lines of business and slips that you might not have had before.”

One of the biggest challenges as a reinsurer is getting on panels with incumbents, continued Donelan, and when panels get shaken up, like they did amid the upheaval seen over the course of 2020, then reinsurers had a chance to jump into the fold, making “inroads without having to influence just price,” he said.

As for how Sompo International has navigated this year, Donelan says the team has passed with flying colors. “The transition to a remote environment has been seamless for us and we continue to operate ‘business as usual’, servicing clients without missing a beat, including amid renewals and broadly across our books of business. Of course, with each month we are in lockdown, the challenges evolve, but, fingers crossed, we seem to be on the right course.

“The ability to grow a business in an upward rating environment with limited legacy challenges, plus having navigated the past few years with a seasoned staff, that’s a pretty good opportunity,” continued Donelan. “Anytime you are thrown into a hard or challenging market, there are two types of reactions, shrink or grow, very few companies with a diverse portfolio stay flat. We are blessed to have the resources – talent, technology and a strong balance sheet – to be able to capitalize on opportunities that we would probably not have seen for many years.”

While the pandemic has tested the company and the re/insurance industry, it’s also brought about a new chapter.

“We’ll come out of a pandemic one way or the other… at the core of our industry, which is one of the oldest industries in the world, it really hasn’t changed much during that period of time,” said Donelan. “Yes, modeling and technology has evolved at a rapid pace the last 15 to 20 years, however, the fundamentals of our business remain the same.

“While none of us were around in 1917 – this isn’t our first pandemic – we have survived some of the greatest manmade and natural cats during our over 300-year history. My guess is we probably have at least another 300 years in us.”

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