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Commercial insurers and reinsurers are navigating a rapidly evolving landscape shaped by changing customer expectations, technological disruption, and competition from new and non-traditional players.

According to insights from consultancy EY, the industry is experiencing a shift from its traditional linear value chain to a dynamic value exchange, which is creating new opportunities for innovation and growth.

EY’s latest NextWave report outlines how inefficient processes and misaligned incentives of the past are being replaced by direct connections, real-time data feeds, and new services such as risk prevention.

The report suggests that the foundation many insurers established by automating core operations in the aftermath of the pandemic can now be built upon with analytics-driven capabilities essential for future growth.

A key recommendation from EY is for re/insurers to maintain a rigorous focus on client needs and a clear purpose to drive product and service innovation. Enhanced digital capabilities, increased organizational agility, and new talent across the enterprise are identified as critical elements for achieving operational excellence and stronger financial results.

EY identifies four focal points that are essential for leadership in the commercial and reinsurance markets:

• Innovation – EY emphasizes that innovation should be guided by a clear purpose to deliver client value. The insurance industry’s role in protecting against significant threats such as cybercrime, climate risk, and geopolitical conflicts is more relevant than ever.

  As insurers develop tailored policies based on deep client insights, these policies will gain greater value when aligned with a clear purpose that generates social value. EY suggests that new and enhanced services will eventually replace existing policy types within holistic value propositions that include proactive risk prevention and advisory services.
   

• Connectivity – According to EY, building on baseline digitization is crucial for optimizing the entire business. To deliver insight-driven services and tailored products at scale, insurers need sophisticated front-end solutions, highly automated back-office operations, and advanced data management and analytics capabilities.

  EY advises insurers to focus on transformation investments that provide value across the business, rather than merely implementing point solutions. The report highlights that real-time connectivity enables a dynamic value exchange, and common data standards within the industry will facilitate quick, transparent data sharing.
   

• Community – EY notes that collaboration and co-creation are key to driving value, as few insurers can address all customer needs alone, especially in the face of large-scale threats like climate change and cyber risks. By forming or joining ecosystems, insurers can leverage extensive connectivity and focus on roles that align with their core strengths.

  EY suggests that insurers should design ecosystems around distinct customer needs, deploy advanced IT architectures for secure data sharing, and utilize outsourcing to scale operations in line with demand.
   

• Talent – Despite technological advancements, EY underscores the importance of putting humans at the center of the insurance enterprise. Creating a culture that values collaboration and creativity is essential for attracting the right talent.

  EY recommends that insurers seek diversity at executive levels, embrace leadership that links work to a broader purpose, and build compelling employee value propositions to develop a more diverse and effective workforce.

Overall, EY’s insights indicate that success in the commercial and reinsurance markets will depend on insurers’ ability to innovate with purpose, enhance connectivity, collaborate effectively, and prioritize talent development in an increasingly complex and competitive environment.

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As 2024 progresses, secondary peril events, particularly severe convective storms (SCS), are causing significant damage to residential properties, commercial enterprises, and their insurers, as per the latest report from Gen Re.

Predictions at the start of the year suggested that a rapid transition from an El Niño to a La Niña climate cycle, combined with other factors like the sun entering its solar maximum, would lead to an exceptionally intense SCS season in 2024. These forecasts anticipated a higher-than-average number of tornadoes, marking the most significant activity since 2020 and 2021.

Additionally, warmer and wetter conditions were expected to result in more tornadoes than hail events, contrasting with the cooler, drier atmospheres that typically foster hail formation.

Gen Re’s analysis through the end of July appears to support these forecasts. Tornado occurrences are approaching historic highs, both in terms of numbers and annual trends.

Simultaneously, the frequency of wind events – encompassing windstorms, high winds, and damaging winds – is significantly above historical norms.

Conversely, the number of hail events involving stones of at least 1 inch in diameter is trailing behind historical expectations, aligning with the projected shift in weather patterns. Despite this, severe weather continues to drive an increase in both the frequency and severity of losses.

According to insights from Gen Re, whether these trends persist remains uncertain, but the impact on the insurance industry is clear. In this volatile environment, proactive risk management and careful accumulation control are essential.

Additionally, pricing strategies must adapt to the heightened uncertainty brought by these evolving weather patterns.

In a separate report, Demex noted that insured losses from severe convective storms (SCS) in the first half of 2024 have accounted for the majority of global catastrophe losses, with the United States experiencing a significant increase in insurance payouts.

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Dedicated reinsurance capital rose by 7% in 2023 to $568 billion, with a further increase anticipated in 2024, according to a new report from AM Best.

Traditional reinsurance capital grew by $57 billion, or 14%, year over year, reaching $468 billion in 2023. This increase was largely driven by robust returns reported by Bermudian companies, with substantial capital growth, excluding Berkshire Hathaway’s National Indemnity.

AM Best projects continued growth in the reinsurance market through 2024, estimating total dedicated reinsurance capital for year-end 2024 at between $620 billion and $625 billion. This projection includes an anticipated 10% rise in traditional capital.

Despite these increases, since 2018, traditional reinsurance capital has accounted for less than 60% of the consolidated shareholders’ equity of companies identified as reinsurance writers, dropping to 49% in 2023 as reinsurers increasingly expand into primary and specialty insurance lines.

Third-party reinsurance capital saw a smaller increase of 3.7% in 2023, reaching $100 billion, according to the report. AM Best collaborates with Guy Carpenter to estimate the total capital supporting the reinsurance industry, with AM Best estimating traditional capital and Guy Carpenter estimating third-party capital.

The third-party reinsurance capital estimate for 2024 is projected to be between $105 billion and $110 billion, driven by growth in catastrophe bonds and collateralized reinsurance.

Dan Hofmeister, associate director at AM Best, noted that capital in the industry has grown rapidly due to higher retained earnings and reduced mark-to-market investment losses. He added that the absence of startup reinsurers has allowed traditional reinsurers to maintain their market shares without needing to adjust to softening conditions.

According to Hofmeister, the reinsurance market is well-positioned to handle a reasonable level of losses and continue growing capital.

The reinsurance market realigned during the January 2023 renewals following years of underwhelming underwriting and operating returns that did not meet the cost of capital. Some reinsurers exited the property catastrophe space, while others adjusted their risk profiles by raising rates and increasing attachment points.

This shift led to operating returns at levels not seen in nearly three decades. Through the first half of 2024, the property reinsurance market has stabilized, with slight softening at the highest attachment points.

AM Best forecasts that the reinsurance market will continue to thrive in 2024, with higher investment returns and similar underwriting risk positions to those in 2023. The market is expected to generate returns on capital exceeding 10% by year-end 2024, although these could be tempered by dividends and an active hurricane season.

However, the market appears capable of absorbing a reasonable level of underwriting losses while still achieving capital growth.

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Bermuda-based legacy re/insurer Compre Group Holdings has completed a legacy reinsurance transaction with Accelerant, a data-driven risk exchange platform.

The transaction, which has received approval from the Bermuda Monetary Authority (BMA), was underwritten by Compre’s Bermuda-based reinsurer, Pallas Reinsurance Company Ltd, and will provide approximately $150 million in coverage on loss reserves.

The portfolio involved in the transaction includes a mix of US and European property and casualty liabilities, covering Accelerant’s retention for the 2020 and 2021 underwriting years. Compre has also indicated that it will offer terms for future underwriting years as they mature.

The transaction was brokered by Augment Risk, with legal advice provided by the UK and US teams from Willkie Farr & Gallagher.

Will Bridger (pictured above), CEO of Compre, commented that the transaction demonstrates the company’s ability to create structured reinsurance solutions aligned with Accelerant’s strategic goals. He emphasized the ongoing partnership between the two companies.

Jeff Radke, CEO of Accelerant, also stated that the deal is an important step in the development of their Risk Exchange as they continue to innovate within the insurance industry.

Andrew Matson, CEO of Augment Risk, highlighted the significance of the transaction in establishing long-term retrospective partnerships and underscored the role of bespoke capital solutions within the insurance value chain.

Compre has also recently reported its financial results for 2023, marking the strongest performance in the company’s three-decade history.

Gross insurance reserves under management surged by 112% year-over-year, reaching $1.6 billion by the end of 2023, largely due to newly acquired reserves exceeding $1 billion. Invested assets totaled $2.4 billion, benefiting from locking in investment yields at the peak of the interest rate cycle.

Tangible net asset value increased by 67% to $784 million, and operating profit grew by 15% to $81 million. Profit after tax stood at $279 million, with an adjusted operating return on opening tangible equity of 19.9%.

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To commemorate reaching its five-year anniversary, Latin Re – the first Brazilian broker to secure a Lloyd’s licence – threw a celebration in São Paulo, drawing over 500 attendees, including insurers, brokers, and other industry participants from over 10 countries. The time and date chosen – August 8 at 8pm – was a deliberate representation of the firm’s ambitions, according to founder and CCO Felipe Aragão (pictured left) – because, by inverting the number eight, you get the infinity sign.

It has been a whirlwind journey for the business which obtained its operating licence in August 2019, enjoying only months of trading before the COVID crisis hit. “Ours is a success story but it has been a challenging one, which makes us even more proud,” noted CEO Maria Eduarda Bomfim (pictured right). Now, the firm’s focus is on the future as it continues to pursue an internationalization strategy, while further consolidating its brand in Brazil.

Latin Re’s internationalization strategy

Aragão highlighted that it’s a great time to be pursuing an internationalization strategy given how the market has evolved post-COVID. Where once it was a lot more formal and heavily reliant on in-person meetings, it has increasingly welcomed the accessibility of remote working, video conversations and emails. That’s not to say the market doesn’t miss an element of the personal touch, he said, and that’s especially true across Latin America where the emphasis Latin Re places on access to decision-makers is resonating strongly.

“So, we started our Miami operation last year, as well as obtaining our Lloyd’s licence, which has increased our demand not just from Brazilian wholesale but most of Latin American wholesale,” he said. “It’s a process not just of opening offices, but now obtaining licences all around Latin America. We’re doing something no other Brazilian company has done before which is doing business overseas but using our Brazilian licence.

“We were recently approved in Peru and we’re expecting the approval for Colombia and Guatemala. We’re already doing a lot of business in Mexico with local partners, and we are very confident that demand is coming from clients that have more of a Latin culture. And that includes both French and Spanish companies.”

What sets Latin Re apart in the market?

Central to the DNA of the firm is its commitment to serving as a marketplace for reinsurance, Eduarda Bomfim said, which means serving partners from all across the re/insurance ecosystem. Latin Re has established itself as a provider of solutions for the complex and specific needs of insurance and reinsurance entities alike. It’s quite a unique approach in that it sees the firm partner with companies which would traditionally be seen as competitors.

“But they are not competitors, because we are able to zoom in on specific and very niche needs, whereas the mega brokers don’t have the ability because they are washed out with so many demands and so many global programs and international institutional demands,” she said. “That goes to the DNA of what we’re building – as a solutions provider in the market, whether that’s retail, reinsurance, treaties or alternative alternative risk transfer.”

Growing a business without losing its shape

Eduarda Bomfim noted that when Aragão started the firm, he was meticulous in hand-choosing every single partner, including herself, and that they had all worked together previously at another brokerage. Having the right people early on inevitably lends itself to having a big will to succeed, she said, and they were each passionate about the opportunity that had opened up due to market consolidation.

Latin Re is on course to finish out 2024 with 60-plus people – having grown at a rate of about one key hire a month since its inception. Whether hiring on the operations, claims, or broking side of the business, Aragão and Eduarda Bomfim each highlighted that every care is taken to ensure they’re attracting and retaining the right people in order to grow quickly, without losing quality of service.

When it launched, the names of its partners were signifiers of its quality and ambition, Eduarda Bomfim said but five years on Latin Re is being recognized across the market. That puts it in a different phase of its growth journey because it’s now being reached out to by people who would like to join the business. Aragão highlighted that the company has also reached the stage where it has appointed its first partner from inside the team, and not outside the company – and projects to have its first ‘home-grown’ partner in the next 12-24 months.

What’s next for Latin Re?

As for what the future holds, he shared that when Latin Re started, its goal for the first two-to-three years was to be the best Brazilian reinsurance broker. It was only when it had enough people that it was able to spot where it differentiated itself from the rest of the market and could add further value to its partners across the re/insurance market. It’s still part of its ambition for the future, but only part of a growth objective that has evolved and changed as the business has done the same. “We are not sales company,” he said. “We are more of a service company.

“We focus on the service, we focus on the demands of our clients and we adapt very quickly to their changing expectations. We really believe that in the next five years, we’re going to have a big effect among the Iberia and Latam regions. And hopefully, we will be as recognised across that whole region as we currently are in Brazil. So, our 10-year party is going to have to be a lot bigger than our five-year party!”

Puerto Rico-domiciled insurers are expected to manage losses stemming from Hurricane Ernesto’s storm surge, power outages, and flooding, with the most significant impacts observed in the island’s eastern and central regions, according to a new commentary from AM Best.

However, the report indicates that it is still early in the claims handling process. Initial feedback from insurers suggests that property losses will be moderate and are likely to remain within reinsurance limits.

According to discussions with AM Best-rated companies, the majority of the damage has been caused by storm surge and flooding, the latter of which is not typically covered under standard homeowners’ policies.

Jason Hopper, associate director of industry research and analytics at AM Best, noted that the processing of claims could be delayed due to widespread infrastructure issues and power outages across the island. Supply chain and transportation challenges are also further complicating the situation.

Hopper also highlighted the uncertainty surrounding the extent of business interruption losses, given the ongoing power outages in Puerto Rico. Many local carriers that underwrite commercial policies and offer power outage endorsements have reported that a significant number of policyholders do not include this endorsement in their coverage.

Before Hurricanes Maria and Irma, premium growth in Puerto Rico had been stagnant for years. However, since then, net premiums written (NPW) have increased by nearly 6% annually on average, except for a slight decline in 2020.

Additionally, unaffiliated Puerto Rico-domiciled companies have taken a larger share of the total NPW, accounting for nearly 78% in 2023, up from 68% in 2018.

Since 2017, premium ceded by these companies to reinsurance firms has more than doubled. While some companies have reduced their exposures due to a reassessment of risk tolerance in response to rising reinsurance costs, renewals for 2023 and 2024 have been less turbulent, and rate increases have moderated in 2024. Insurers have indicated that, to date, losses from Hurricane Ernesto are expected to remain within reinsurance limits.

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The role of discipline in creating a sustainable reinsurance market has been the overriding theme of reinsurers’ H1 2024 investor presentations and results debriefings. As hurricane season heats up – and the market braces for an “unusually active” season – this emphasis on consistency is unlikely to reduce, not least because of the pressing need for the reinsurance industry to build a strong track record as a “good custodian of capital”.

The pressure is on reinsurers to build up their credibility – however, in a recent market update with Re-Insurance Business, QBE Re MD Chris Killourhy (pictured right), also highlighted the need for insurers to showcase the value they place on consistency. With that in mind, over the last 18 months, QBE Re has been on a journey of reducing its client count quite significantly. “There’s nothing wrong with this approach but some clients do want to focus on trying to change what they buy each year to get as low a price as possible. That’s a totally valid business model, it’s just not where we want to play.”

The changing premium placed on consistency

What has become clear since the team set out its strategy is that there are a lot of clients who recognize the benefits of consistency and would rather pay a sustainable price and know the cost of what they buy year-on-year. Having a better understanding of the cost of what you’re buying allows for the creation of a more sustainable marketplace in the long run and removes the dread that comes with pricing uncertainty.

Following a boom-and-bust cycle makes for significant uncertainty and there are very few industries that can run sustainably while navigating sharp pricing shocks. “We’re finding there is a really healthy dynamic appearing in the market, generally speaking, [across] insurers, reinsurers and third-party capital,” he said. “We’re less competitors now, rather we’re all looking to play a role in the linking of risks to capital. We’re just playing slightly different roles. I think the days of trying to work out how we can keep as much of the value to ourselves are probably moving on, and we’re all just looking to be more sustainable.”

RVS in Monte Carlo – what’s leading conversations?

Inevitably, what dominates discussions in the reinsurance industry is subject to what’s shaping the broader risk environment and, looking ahead to RVS in Monte Carlo, Killourhy said he expects to see a lot of discussion around property-cat. No matter how much market players try to expand the agenda, property-cat tends to dominate for one of two reasons – either there has been a big loss, or there hasn’t been, and people want to discuss what that means for pricing.

“I think the reinsurers will be looking to just confirm that this discipline and pricing piece is going to stay,” he said. “I think the days where we think that the cost of what we’re selling is claims is moving away. If we have a clean or relatively benign cat year, and we make a profit, we’ve got to look at what our investors are looking for.

“The real cost for them is the capital that’s tied up with a reinsurer and they need to make sure they’re getting a return on their capital, as compared to doing something else within. So, I think we’ll all be looking to see if that discipline is going to remain, and whether our buyers are still on the same page with regards to wanting a sustainable industry in the long-term and to see less fluctuations in prices.”

Man-made catastrophe exposures – a changing emphasis

Killourhy also expects to hear more discussion around man-made cat than there has been in the past on both the buying and the selling side of the market, particularly given the geopolitical uncertainty being seen around the world. “I think the selling side are trying to get comfortable as to what coverage we’re giving. And on the buying side, it’s about understanding what protection is out there for the non-cat side of property.”

On casualty, he anticipates that RVS will yield conversations about the prior-year development that a number of companies reported in their half-year results – and the extent to which the market should or shouldn’t be reading into what this prior-year development tells it about more recent years. “I think insurers and reinsurers are having to give credit to the re-underwriting of portfolios.

“With a lot of the adverse prior year development we’re seeing, there’s a strong argument that underwriting on the primary side has changed significantly since then, both from a rate point of view and with regard to terms and conditions. I think there’ll be discussions around where we’re seeing the evidence of that, and what are the proof points that we have seen a watershed between the underwriting that’s driven the prior year development and where are now.”

Carlos Wong-Fupuy (pictured above), senior director at AM Best, discussed the findings of a recent report, noting that despite global challenges in benchmarking due to the adoption of IFRS 17, the reinsurance segment continues to expand. Returns on equities in the sector are also expected to remain well above the cost of capital.

When asked about a key theme from last year’s conference, Wong-Fupuy highlighted the increased market discipline among global reinsurers, particularly in property pricing for the primary market.

In an interview, he also noted that the shift began with the January 2023 renewals, which occurred in a relatively dislocated market, putting pressure on primary insurers to adjust their portfolios. The outcome was a noticeable increase in market discipline.

Wong-Fupuy explained that initially, the reinsurance market saw a gradual repricing and de-risking of portfolios. By 2023, a significant change was evident, reflected in the results. Return on equity (ROE) for several companies in the US and Bermuda exceeded 20%, and these strong results continued into the first and second quarters of 2024.

While European reinsurers reported slightly different outcomes due to IFRS-17 adoption, key performance indicators are trending positively. Reinsurers have exerted pressure on primary carriers to improve portfolio quality.

Looking ahead, Wong-Fupuy expects this market discipline to persist longer than in previous hard cycles. He attributed this to a lack of capital depletion, as the market remains well-capitalized.

Investor pressure to improve returns, stemming from underperformance in prior years, is expected to sustain this discipline for at least a couple more years, contributing to the positive outlook assigned to the global reinsurance segment.

Challenges for global reinsurers

As the industry moves into 2025, Wong-Fupuy acknowledged several challenges. Strengthening in US casualty books has been observed, particularly in underwriting years 2016 to 2018. Although changes in underwriting practices have been made since 2019, it’s still early to determine the full impact. Increased attention is being paid to underwriting quality, risk selection, and pricing to address these challenges and reduce uncertainty.

Wong-Fupuy also mentioned the ongoing hurricane season, with forecasts predicting above-average catastrophic activity. While there may be limited room for pricing improvement, the impact of this activity on terms, conditions, and attachment points remains to be seen. The cyber insurance market continues to expand cautiously, with mixed views on risk levels and pricing adequacy.

Regarding reinsurance capacity, Wong-Fupuy highlighted that this hardening cycle differs from previous ones, as the market has remained well-capitalized without major catastrophic events eroding capital. Unlike past cycles, there has not been a surge in new company formations. Instead, capital generation has largely come from profit retention. Companies are improving their risk profiles, and some of the largest players are expanding and deploying capital more efficiently. There is no shortage of capacity, both in the traditional market and on the insurance-linked securities (ILS) side.

Wong-Fupuy noted that after several years of stabilization below $100 billion in ILS capacity, the market is now estimated to exceed $100 billion, reaching around $105-106 billion. He emphasized that ILS is not a competitor to the traditional reinsurance market but rather a partner and an essential platform that many traditional reinsurers use to expand their business.

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Markel has appointed Grant Smith (pictured above) as director of marine & energy liability for its international specialty division, effective immediately.

The company highlighted Smith’s appointment as part of Markel’s ongoing efforts to strengthen its international specialty underwriting capabilities, following the launch of its international specialty practice in December of last year.

Smith brings more than 17 years of experience in the liability insurance market, having held various underwriting and leadership roles. He joins Markel from QBE, where he most recently served as portfolio manager specialty for QBE European Operations, managing a wide portfolio of international marine business, including liability, hull, and P&I classes.

Before his time at QBE, Smith worked in underwriting roles across marine and aviation at Travelers, beginning his career in the industry.

In his new role, Smith will lead the marine & energy liability team within Markel’s international wholesale business. He will be tasked with driving growth initiatives that align with Markel’s long-term strategic goals. He will be based in London and will report to Tom Hillier, managing director of international specialty at Markel.

Hillier noted that clients are currently navigating a challenging environment due to economic inflation, changes in regulatory and legal frameworks, and emerging technological and climate-related liability risks.

Hillier also highlighted that when the specialty practice was established within Markel’s International Wholesale business last year, the company set ambitious goals for the marine & energy liability team, focused on achieving sustainable and profitable growth and establishing leadership in underwriting and service.

“I’m therefore delighted to welcome Grant on board to lead our marine & energy liability team. I’m confident his background and experience will position him to lead the team to deliver on our ambitious goals for this class of business and provide a superior service proposition to our clients and brokers,” he said.

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