Seeing beyond the short term: Dieter Winkel, Liberty Mutual Re

Liberty Mutual Re’s Dieter Winkel tells FIDES Today how best to respond to what seems an increasingly chaotic world.

Anyone who believes that setting the agenda for the reinsurance industry next year is solely the prerogative of the Monte Carlo Rendez-Vous needs to take account of the growing importance of FIDES. The attention of European journalists may be on the event in Monaco, but a growing contingent in the industry has noted the Latin American reinsurance sector flexing its muscles and altered its diary accordingly.

With the event taking place in Bolivia for the first time, the impact of the debates around the conference venues should not be lost on anyone.

This year, ratings agency Standard & Poor’s (S&P) latest report is bound to be a topic for discussion around the Place du Casino. S&P’s assessment of the global reinsurance market, published in mid-August, asserted that mergers and acquisitions (M&A) in the sector will continue apace for the next five years. S&P concluded that “challenging market conditions” will continue to drive consolidation with pressure on the sector’s earnings continuing.

How will Liberty Mutual Re react? Much of the answer to that question is signalled by our name. As a mutual, we are essentially immune to the distractions of being acquired. Our stability combined with our track record of reliability and consistency polish up more brightly when the wider market indulges in corporate activity. New entrants come and go; we invest in long-term relationships and gaining a deeper understanding of our customers’ needs.

How to respond

Putting M&A to one side, this leaves the question: how does a business such as Liberty Mutual Re respond to these challenging conditions, albeit with rates firming in areas such as post-Jebi Japan and post-Irma Florida? In response, I’d like to point to three key areas.

First, cost base. Many reinsurers’ instinctive reaction is to make noises about cost-cutting, but that short-term approach may be a false economy. Reinsurance is an inherently complex market which does not easily lend itself to the type of fintech platforms we’ve seen in the direct insurance world.

As emerging risks become harder to quantify, there’s no substitute for a deep understanding of our clients’ businesses, built over the long term. A presence on the ground around the world is also vital in order to manage and develop client relationships. Yes, this kind of investment is long term and expensive, but essential to delivering the high quality reinsurance services and solutions our clients want and deserve.

Second, the behaviour of reinsurers is changing. For some time, we’ve been seeing growth in traditional reinsurance capacity and a greater degree of flexibility being deployed to support clients’ requirements. For example, there has been much market chatter about cyber, particularly the risk of silent cyber within more general or traditional covers, hence the move to develop bespoke cover.

Overall, the market will need to keep adjusting in line with the changing risk profile—in particular regarding technology risks.

For example, in just the last few months, we’ve seen growing concerns regarding drones, e-scooters, e-bikes and other individual electronic transport devices, which are having a significant impact on balance sheets.

Third and finally, we recognise that market sentiment remains finely balanced between optimism and pessimism—although currently the optimists seem to be winning. The good news is that the market does seem to be responding to the tough conditions. The bad news is that it could still do more.

To blur the picture a little, it’s important to note that the Atlantic hurricane season remains with us. Throw into the mix population growth and increasing development of the world’s coastal areas and the result becomes harder to call.

Faced with conditions like these, the whirl of M&A and a world that seems increasingly chaotic, being able to take a long-term view is reassuring. It makes things simpler. While many reinsurers are pulled this way and that by the competing demands of shareholders and clients, Liberty Mutual Re’s focus remains firmly centred.

The more chaotic the world, the greater the need to build strong client relationships.

Dieter Winkel is president of Liberty Mutual Re. He can be contacted at: dieter.winkel@libertyglobalgroup.com