Challenges, opportunities and the future - a reinsurers’ view

FAnews approached a few reinsurers to find out what they see as the challenges and opportunities for 2014. Although the picture looks somewhat different if you compare life and short-term reinsurers, the relationships they have with insurers are equally important and hold the same challenges and bopportunities. The role of reinsurers cannot be underestimated in our industry, as they are some of the biggest risk carriers and therefore undeniably important in our relationships with clients.

Questions

1. Some of the challenges reinsurers face in 2014 and beyond is catastrophes, climate change, competition, cyber risks, space risks and alternative capital. Do you agree, and of these, which ones do you believe is the biggest ones for 2014?

2. Over the years, commentators and courts have described the reinsurance relationship in various ways. Among the attributes that stand out when describing the reinsurance relationship is the duty of utmost good faith, or uberrimae fidei. How has this evolved over the years?

3. Are insurers and reinsurers meeting each other’s expectations?

4. What does 2014 hold for the reinsurance industry?

Johann van Niekerk, Head of Strategic Marketing, RGA Reinsurance Company of South Africa Limited answers:

1. I consider the greatest challenge for life reinsurers as competition. For reinsurers to remain relevant, they have to ensure that their services are relevant and valuable. They need to continually develop and deliver solutions that offer tangible benefits to their clients, and in an environment with strong competitors, it is not easy to outperform. The competition among insurers also has a bearing on reinsurers, and will certainly challenge life reinsurers in areas such as product development, innovation and service.

2. I believe the duty of utmost good faith has remained constant and foundational to our business relationships. We consider ourselves to be partners to our clients, and as such trust that has been built over years of acting in good faith, is absolutely critical.

3. I believe we are. The reinsurance market in South Africa is a very competitive one, and any reinsurer not meeting expectations, will soon find itself out of the running for business. Surveys have shown that insurers continue to value reinsurance services.

4. One of the major challenges we face is helping insurers achieve their goals of extending the reach of life insurance in South Africa through the provision of fantastic products and services developed with the consumer in mind. The South African insurance industry is wonderfully innovative and full of opportunity, and we certainly look forward to playing our part in making 2014 a successful year for the life insurance industry.

Achim Klennert, MD, Hannover Reinsurance Group Africa answers:

1. One of the greatest challenges for 2014 is whether or not reinsurers will apply underwriting discipline. It is for a good reason that a leading rating agency has recently warned about downgrading the sector or sector players for accepting risk without adequate risk premium.

2. Ultimately, the relation between insurer and reinsurer has to be carried by trust. However, the advances in technology also mean that data and data quality are playing greater roles. In the past, reinsurers only had the capacity to analyse aggregated data. Today it is possible to share the full information that an insurer has about a portfolio with the reinsurer. This can lead to additional added value that the reinsurer can provide, for example in terms of actuarial analysis and recommendation, but also allows the reinsurer to control exposures more tightly.

3. I do not believe that there is a general answer to this question. Otherwise all relationships would always be stable and one could actually observe quite significant changes at every renewal of reinsurance contracts. On the whole, the insurance and the reinsurance industries have had a symbiotic relationship over a very long time and both industries have prospered, which indicates that, broadly, expectations are being met.

4. Regulation and the compliance with regulation, whether it is Solvency II or SAM, will bring significant challenges. And while this type of regulation is aimed at ensuring sustainability of companies and the sector, market forces and rating agencies are still playing a major role in determining the success or failure of reinsurance players. Overcapacity in the reinsurance sector will put pressure on industry players.