The Road Ahead: Reinsurance 2024
Will reinsurers face speed bumps or be in the driver’s seat in 2024? Inflation, climate change, and the need for additional capital are all expected to play a part. Listen as host Patrick Nobbs, Sapiens’ Regional Marketing Director, EMEA & APAC and special guest Martin Greenberg, Sapiens’ Head of Reinsurance Business Practice, discuss what trends and growth opportunities lay ahead for industry players, and what tactics will keep them on the road to success in this year’s market.
Patrick Nobbs|Martin Greenberg
Patrick Nobbs: Hello! Welcome to the Sapiens Insurance 360 podcast. I’m your host, Patrick Nobbs, Sapiens’ Regional Marketing Director, EMEA & APAC, and I’m so glad that you’re out there listening; this is where we discuss the latest news, trends, and issues from across the insurance solutions and technology spectrum.
Happy 2024 to all our listeners! It’s a brand-new year, and we have so much exciting and insightful insurance content planned for the second season of our podcast. To officially kick things off, we’re privileged to have back Sapiens’ own Martin Greenberg as today’s guest, who’ll be speaking on “The Road Ahead: Reinsurance 2024.”
Martin is Sapiens’ senior subject matter expert in reinsurance and has many years of experience in IT development and management, as well as domain expertise across the entire insurance business. He served in the Israel IDF Computer Center for over eight years, developing and directing comprehensive logistics projects, and afterward held several managerial positions in the Israel Phoenix Insurance Group, including CIO and assistant general manager of the Hadar Insurance Company, Manager of IT Development and Systems at City Fire Insurance Company in London, and was CEO at the Noga Insurance Company. Prior to joining Sapiens in January 2006, Martin held the position of deputy manager at FIS software for over five years, managing the general insurance P&C product and global clients.
Martin, welcome back! You were a guest early in our first season, and it’s great to have you with us again!
Martin Greenberg: Patrick, thank you very much. It’s great to be here once again on the program.
Patrick Nobbs: So today, we’re going to be discussing some of the trends and expectations for the 2024 reinsurance industry. What are the possible speed bumps that reinsurers, brokers, and customers may face in the year to come? Martin, what are your thoughts?
Martin Greenberg: Well, Patrick, based on recent years’ events and results, considering the assessments of market analysts, brokers, rating agency, and consolidating their views, as well as the reinsurance contract renewals for the upcoming year, it seems there are key aspects of determining the current trends in reinsurance. Firstly, capital. Insurers are under pressure to increase capital to support the current business, even without considering growth. This is due to two factors. The first one is inflation. The inflation rate in the past year was over 3% in many markets, actually approaching 4%, which resulted in raising of the insured values. So insurers must top up the risk liabilities and accordingly, the related capital associated to the liabilities. Then you’ll have the CAT models. Both insurers and reinsurers are applying new or updated models for evaluating natural catastrophe risks, mainly resulting from the effects of climate change. We discussed this, actually, in a previous podcast. The result of the updated models is an increase of risk limits. Therefore, again, the need to increase capital. So on one hand, there is a need for additional capital. But on the other hand, there seems to be no significant change in the availability of capital in the market. There are no new entrants in the market this year and there is no expectation of an influx of alternative capital into the market.
So capital is a big issue in itself, the need for additional capital. Then you have the topic of CAT events — continuous support. Reinsurers haven’t encountered an increase of frequency or magnitude of CAT events worldwide in the past year. Perhaps excluding one event, in the past year, the Turkey earthquake. Therefore, they’re continuing to provide support for insurers for these risks. So the bottom line actually is twofold. There’s certainly a demand for insurers for increasing reinsurance support, mainly due to increasing capital needs. And reinsurers are willing to provide the ongoing and even additional support. But on the other hand, there doesn’t seem to be an alternative to the current reinsurance market, especially as there’s no expectation of new entrants. Overall, to summarize, it seems the market conditions are in the reinsurers’ favor and as a result, they’re driving the market in 2024.
Patrick Nobbs: Thanks for that, Martin. So moving on, on a slightly different note, what is influencing reinsurers in their response to market needs?
Martin Greenberg: Well, having the position with the reinsurers in a favorable place, it seems there are specific topics which are affecting reinsurers’ responses to the market’s requirements. For instance, underwriting results. As always, first and foremost, the need to insure profitability and improve the bottom line. Reinsurers can insist on favorable terms in renewed contracts. Investment results. As there was a rise in interest rates in recent years, there’s a current expectation of increased earnings, which will enhance investment income. And then, there are expectations of the reinsurers of the primary market. On one hand, reinsurers intend to be the “shock absorbers” for large events, but they will still wish to move away from standard events that should be supported by the primary market.
Patrick Nobbs: Interesting. Thank you. So now that the reinsurers are driving the market and based on the desired goals, how does this affect the 2024 reinsurance market itself?
Martin Greenberg: Patrick, I think there are two important aspects. Firstly, reinsurers are supporting the increasing demand for coverage in 2024, but this is subject to increased underwriting discipline, which is now expressed in current reinsurance contracts. And it looks like the current hard reinsurance market environment will persist into the foreseeable future, which will support the expected reinsurance profit levels. It’s important to note that the hard market is driving insurers to look for alternative solutions, for instance, CAT bonds, but this activity isn’t significant enough to change the current market outlook.
Patrick Nobbs: Thanks for that, Martin. Could you provide some concrete examples of the measures being applied by reinsurers in the current reinsurance programs?
Martin Greenberg: Certainly, Patrick. Here are some specific measures that reinsurers are currently taking in the reinsurance market during their renewals. Firstly, increases in premium rates. These can vary from minimum fluctuations up to around 5%. We’re also seeing additional fine-tuning of terms and conditions in reinsurance contracts, obviously in favor of reinsurers. For example, exclusion clauses, limited coverage, and so on.
And reinsurers are pinpointing, if I look into the specific types of resource contracts, they’re preferring excessive loss contracts where they have full control over premium rating and pricing over proportional contracts, such as quarter share and surplus, where the reliance is on the carrier underwriting and rating is less controlled. So reinsurers can actually also drive which types of contracts they want to write. Reinsurers will possibly leave from the problematic territories altogether due to various event types, for instance hurricanes in Florida and wildfires in California.
Patrick Nobbs: Okay, understood. So overall, what can we expect from the 2024 reinsurance market then?
Martin Greenberg: Well, I think considering the current trends, it’s not surprising to see that market analysts have updated their forecast for the 2024 reinsurance market, either from neutral to positive or from negative to stable. In a nutshell, the reinsurers are currently driving the market, with expectations of an increase in demand for reinsurance protection, which will yield profitable results for the immediate future.
Patrick Nobbs: Thanks so very much, Martin. Fascinating. 2024 looks like it will be different from 2023 than in previous years; it will be more stable with additional growth opportunities for all the players in the market. So to our listeners, as always, thank you so much for spending your time with us here today. We love hearing from you, so if you have comments or would like to follow us on social media, please reach out to us on our channels. And don’t forget to subscribe to the podcast. Thank you once again for listening. We’ve got more coming, so be sure to tune in next time to Sapiens Insurance 360.
