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18-Nov-2022 17:44:43 5 min read

Insight and Agility Are Key to Success As a Hard Reinsurance Market Dawns

Reinsurance rates rose again this year and are projected to continue that trend in 2023 – prompting analysts (including JMP Securities) to declare that the reinsurance industry is on the cusp of its first true hard market in the best part of two decades.

The industry has changed a great deal since the hard market which resulted from the events of 9/11 in the early 2000s – technology trends such as digitalisation, analytics and AI, as well as increasing accountability to regulators and stakeholders have transformed reinsurance into a truly data-driven business. However, many of the usual business dynamics remain in play this time around.

In a hard market, everyone is more risk-averse and every decision must be justified. Reinsurers, like insurers, need to understand which areas of their business are profitable, which are not, and manage their resources as efficiently as possible.

While some may resort to blanket rate increases in a hard market, those with a deeper understanding of their portfolios can take a more intelligent approach, applying rate increases by risk, class or location, for example, rather than punishing every client. It’s obvious with whom brokers and cedants would rather work!

The hard market also creates opportunities to deploy capacity to those aspects of business where reinsurers believe they can offer better terms than the rest of market. To do this you need to be confident in your risk tolerance – and convince your retro partners your strategy will be successful too.


Insight and agility

In a hard market, data analytics really comes to the fore. As a reinsurer, accurate and timely insight into how you are performing at any given moment is vital.

You need to be able to conduct deep-dive portfolio reviews, assessing risks, exposures, loss ratios and other performance indicators in real-time to avoid unwanted accumulations and to ensure business is written in line with risk appetite. Risks must not only be thoroughly analysed but augmented with external data sources to empower underwriters to make informed decisions.

Some reinsurers will have access to vast volumes of risk data, perhaps via a data warehouse, however, a data rich policy administration system can also play this role.

With the right eco-system of applications in place, data should only have to be entered once, ensuring a single version of the truth flows through the reinsurance process and eco-system, and also to and from external partners – reducing administrative burden, spend and errors in the process. Data should be structured so you can analyse it by a range of variables and timeframes, and feed it seamlessly between underwriting, exposure management and actuarial processes, as well as external market systems. Only then can you truly understand your own position and be equipped to make the best decisions for the business.


The power of reporting

Being armed with consistent, accurate data empowers you to optimise the deployment of your capacity – but you’ll need to back the business you write with appropriate retro coverage. That means convincing the retro markets your underwriting decisions are sound. Retro providers demand greater information today than they did during the last hard market. However, it’s not just providing granular data which gives you an edge – it’s being flexible in how you present it.

Visualisations; triangulations; risk bands; geographical breakdowns – retro providers want to assess portfolios through various lenses and granularities. They want premium earning projections overlayed with up-to-date risk, claim and credit control data. They want a true picture of your position and the health of your business. Failing to provide the information they need – in the format they want it – will limit your options and make it much harder to obtain capacity at a good price.

According to Guy Carpenter, property retro rates rose, and capacity tightened at the last 1/1 renewal. In this environment, winning retro cover at the right price is crucial to maintaining profitable growth. That’s why reporting should be seen not just as an enabler of compliance but as a key strategic tool. You simply can’t write the business you want without strong reporting and accounting capabilities.

With a dynamic central system at the heart of the business pulling underwriting, reporting, accounting and compliance into a single workflow, it’s possible to do in minutes what might take a reinsurer relying on legacy systems days. In a hard market, agility breeds competitive advantage, and those who have already invested in technology to enable this are already ahead of the game.


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