DBRS Morningstar investment analysts say that reinsurers’ expertise in risk selection and underwriting, combined with their ability to support new market expansions and product development, sets them apart from of alternative capital providers.
As the frequency and severity of insurable events increase due to factors such as pandemics, global warming, and geopolitical tensions, reinsurers are poised to play an important role in mitigating losses and strengthening on strength.
In the field of reinsurance, two basic types have emerged as key illustrations of the evolution of reinsurers from sole payers to strategic partners.
Co-insurance, where primary insurers hand over a portion of their written business to reinsurers, promotes the latter’s expertise in risk assessment and strategic underwriting decisions. This collaboration enables reinsurers to selectively choose which parts of the book to underwrite, based on their wealth of experience and insight.
In addition, reinsurers have become sought-after allies for primary insurers, as their expertise drives market entry into new territories, product diversification, and market share changes.
The second form, excess loss reinsurance, further strengthens the symbiotic relationship between reinsurers and primary insurers. By paying primary insurers against losses that exceed a predetermined threshold, reinsurers demonstrate a vested interest in maintaining high underwriting standards.
This reliance emphasizes reinsurer liability and requires sophisticated risk mitigation strategies and appropriate risk selection from the outset. It is this shared responsibility that makes reinsurers valuable in directly insuring larger, specialized commercial risks.
Against the backdrop of an increasingly uncertain world, where unexpected events have far-reaching effects, the need for insurance against inconvenience and economic loss is set to increase. Reinsurers, armed with their specialized knowledge and skills, are uniquely positioned to help mitigate such risks.
By using their insights, reinsurers can work with communities, regulators, construction companies, and disaster recovery forces to navigate the higher probability and severity of natural and man-made events. .
Their involvement goes beyond insurance, as they help form strong land regulations and build standards, as well as develop strong physical assets and systems.
This repositioning of traditional reinsurers as a key risk management partner differentiates them from alternative capital providers.
Recent years have seen an increase in losses from weather-related events, which, despite high levels of capital and increased alternative capital supply, have hampered reinsurers’ ability to raise prices of considerable size.
However, a confluence of factors, including the unprecedented COVID-19 pandemic, severe natural disasters, large man-made losses, and the subsequent increase in interest rates to prevent inflation, created ideal conditions for reinsurers to establish new and higher prices.
The intrinsic value of reinsurers as trusted partners further strengthens their business model, heralding a potential renaissance for the industry, analysts say.
