Headwinds, tailwinds and crosswinds

The industry is facing headwinds, tailwinds and crosswinds—experts including Denis Kessler, chairman and chief executive officer (CEO) of SCOR, discussed these challenges at a PwC-hosted breakfast briefing at the Monte Carlo Rendez-Vous yesterday.

Kessler focused on topics including the low interest rate environment, overcapacity and ongoing macroeconomic and geopolitical challenges.

He also addressed the strength of the industry in the face of disruption from insurance-linked securities (ILS), consolidation and regulation.

In his speech, Kessler said: “The industry cannot wait for a shock to return it to the old days. We should prepare for it; it is our job to do so. The solution to today’s challenges will come from our capacity to handle the business.”

Despite consolidation strengthening the market, Arthur Wightman, territory and insurance leader, PwC Bermuda, thinks there is still room for improvement and expects further deals.

“Bermuda is clearly like other jurisdictions—it has reinsurers facing a number of challenges primarily associated with the longstanding soft cycle, but also from other areas including the alternative capital coming into the market,” Wightman said.

“The market is also still fragmented, despite some of the consolidation that happened last year. There are some players in the middle ground that are potentially under threat from mergers and acquisitions activity.”

Wightman emphasised that positive change is afoot. “The market is at a tipping point where all these pressures are forcing reinsurers to consider their models, but also forcing them to think about innovation in a more practical and precise fashion,” he said.

“We are seeing some positive moves towards growing the overall risk that’s coming into the market, particularly in the areas of flood, terror, cyber, mortgage and so on. That’s a good thing because the industry does need to continue to innovate to grow.

“The big opportunity for reinsurers is to get governments to place more risk into the private market, to better select risk, innovate and try to grow the coverage and protection that can be provided.”

PwC has launched a new report, Firing on all cylinders: Five steps to strategic cost reduction, which highlights the steps the insurance industry needs to take in order to implement a successful and differentiating cost reduction plan. Cost reduction is an industry-wide challenge and, PwC argues, success will be found through bold, targeted and strategic action.

Stephen O’Hearn, global insurance leader at PwC, added: “The industry is under pressure from many angles but we have proven to be a resilient market and where there is disruption, there is opportunity. Insurers and reinsurers must assertively address their cost structures and embrace a culture of innovation to capitalise on the opportunities of the current market.

“Having access to the most diverse pool of talent and experience is critical to bringing varied perspectives to the challenges of the current market. With the right team, and a bold, strategic approach to the emerging challenges and opportunities, the industry will continue to flourish.”