Long-term view needed to ensure market sustainability

“The market has reached an equilibrium with improved conditions,” said Haixia Zhao, chief underwriting officer, international reinsurance, Sompo Re, reflecting on the past year’s reinsurance landscape in an interview with Monte Carlo Today .

This stability is the result of a positive continuation from the previous year, suggesting that the market has found a balanced state, and Zhao attributed this stability to several key phenomena.

“The market continues to see more limits purchased due to inflation, and the traditional and alternative capital markets are both showing pricing discipline.”

However, Zhao also highlighted ongoing challenges: “There’s been an increased frequency of losses from non-peak perils becoming significant, such as floods, hail, and other events.”

These observations point to a growing trend where secondary perils are starting to impact the market more substantially, highlighting the need for vigilant risk management.

“We have a lot of geopolitical uncertainties, with many elections worldwide and macroeconomic volatility,” she added. 

The industry often suffers from a short memory, where a good year can lead to complacency,” 

Despite all these uncertainties, Zhao remained optimistic about the next year, saying: “The market will remain positive; it has taken a long time for reinsurers and insurers to rebalance profits and risk-sharing, but the stable market will continue, barring significant events through the hurricane season.”

Discipline needed on emerging risks

Zhao emphasised the importance of maintaining discipline, saying: “We need to hold firm on the terms and conditions we achieved in 2023.

“The industry often suffers from a short memory, where a good year can lead to complacency.” 

Zhao warned against forgetting the lessons from less favourable years and stressed the importance of maintaining a long-term view. “The industry must be sustainable and not forget the long-term nature of our business,” she said. 

She highlighted specific areas where vigilance was required. “The market needs to be cautious about trends in primary sectors such as D&O, marine, energy, aviation, and cyber.

“These areas have seen declining margins, and it’s crucial to stabilise them.” 

Zhao noted the importance of addressing specific events that impacted the industry. “Events such as the unrest in New Caledonia and other recent occurrences of civil unrest should indicate that strikes, riots and civil commotion needs to remain as a strong focus,” she said. 

The need for a diversified portfolio is key. “Diversification across different lines of business and regions helps ensure a balanced approach and potentially good returns, because each area is at a different phase in its cycle,” she explained.

Talks at Monte Carlo 

Zhao expressed hopes for more productive discussions and valuable insights and is keen on understanding client needs and market trends. “We want to discuss our clients’ purchase structures, growth areas, strategy changes and potential new reinsurance coverages with which we can provide solutions,” she said.

She sees Monte Carlo as an opportunity to gauge market expectations and prepare for the future, saying: “It’s important to align expectations so we can trade fairly and equitably.

“We want our strategies to be well-suited to the market’s direction and client needs with consistent underwriting discipline.” 

She views the event as a key moment for strengthening relationships. “Monte Carlo is a great opportunity to meet clients and brokers, communicate our commitment, and share market insights.”

Looking ahead, Zhao remains optimistic. “Given the positive environment, we see growth potential across various lines of business.

“We are planning for growth and ensuring that we deliver fair returns for the capital deployed,” she concluded. 

For more news from the Rendez-Vous de Septembre (RVS) click here.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.