Reinsurance market sees challenges, alternatives amid turmoil of 2020

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That’s not to say the last three years before the pandemic went smoothly. Indeed, the reinsurance market went through a significant development during this period that prepared it to weather the storm in 2020 and beyond. As early as 2017, the aviation companies believed that there was an unlimited amount of capital in the reinsurance market. Perhaps at this point that perception was correct and created confidence that this premise would always be the case. However, the more than 300-year history of the industry would suggest a very different result.

That mindset has been shattered by trends in social inflation (although it could be argued that it is just a normal market cycle) and multiple consecutive years of natural disasters putting pressure on the market, explained Christopher Donelan, CEO of Global Reinsurance at Sompo International and added, “Then this year just broke the lid on everything.” Now investors are more cautious, “and that puts a lot of pressure on performance,” Donelan continued.

In addition to the pandemic that has left many insurers struggling to understand what their ultimate losses will be and the potential complexity of developing business interruption claims, 2020 was a record year worldwide of natural disasters, including more than 75 events in the US alone. There have been 30 named storms in North America, 13 of which reached hurricane status. Of the ten most costly natural disasters in 2020, six occurred in the United States. This was the most expensive extreme weather year (forest fires, tropical cyclones, tornadoes and hailstorms) that the country has ever recorded. This environment has had a particularly strong impact on reinsurers as the underwriting business has had to look at risk in a slightly different way than it is probably used to.

“If you were planning to be a growth reinsurer or a reinsurer in March, April and May, suddenly you could accomplish one of those goals relatively quickly. If you retire, there were ways to get out of business; If you wanted to grow, there were ways to do business, “explained Donelan, noting,” A pandemic alone would have been a challenge. So it’s amazing that the majority of the industry is in one decent place in the wake of the pandemic. “

Looking ahead to 2021, Donelan doesn’t see just one area or industry that is poised for growth or that reinsurers should focus on. Instead, he says, “It’s case by case, business to business, company to company, and how you want to grow as a reinsurer with key partners… For example, if you haven’t had a solid corporate presence in the US or anywhere else in the world before that, now you have the chance to get stronger from a relational point of view. This means the opportunity to participate in lines of business and slip-ups that you may not have had before. “

One of the biggest challenges for a reinsurer is getting into panels with incumbents, Donelan continued, and if the panels were shaken like the upheaval in the course of 2020, reinsurers had the chance to go into profitability without “progress just having to influence the price, “he said.

How Sompo International has navigated this year, according to Donelan, the team passed with flying colors. “The transition to a remote environment went smoothly for us, and we continue to work as usual and serve customers without interruption, including updates and generally in our books. Of course, the challenges keep evolving with every month we are banned, but we keep our fingers crossed and seem to be on the right track.

“The ability to build a company in an upward rating environment with limited legacy challenges, and to navigate the past few years with experienced staff is a pretty good opportunity,” continued Donelan. “Every time you run into a tough or challenging market, there are two types of reactions: shrink or grow. Very few companies with a diverse portfolio remain unchanged. We are blessed to have the resources – talent, technology, and a strong track record – to capitalize on opportunities that we may not have seen in many years. “

While the pandemic has put the company and the reinsurance industry to the test, it has also opened a new chapter.

“We’re going to get out of a pandemic one way or another … at the core of our industry, which is one of the oldest industries in the world, really not much has changed in that time,” Donelan said. “Yes, modeling and technology have advanced rapidly over the past 15 to 20 years. However, the fundamentals of our business remain the same.

“While neither of us was there in 1917 – this is not our first pandemic – we have survived some of the largest artificial and natural cats in our 300-year history. I suspect we probably have at least another 300 years left. “

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