According to Willis Re’s latest report, reinsurers are seeking to implement major changes to their strategies and business models to accommodate the growing transparency of major buyers around their core partner strategies,
M&A activity amongst reinsurers also continues to gather pace, according to Willis Re, with three major transactions announced since 1 January 2015.
With the pool of potential partners shrinking, Willis Re has claimed that aspiring consolidators are now increasingly concerned about missing out on what many observe to be industry change that could last across generations.
The report also highlighted that insurance-linked securities (ILS) funds are not immune from the current market challenges, with reduced returns and the downward pressure on fees placing the business models of some smaller standalone ILS managers under duress.
Peter Hearn, global chairman of Willis Re, commented: “ILS fund managers evolving into more traditional reinsurer models and reinsurers expanding their own fund management activities appear best placed to trade through this difficult period; they can manage investors and access business more effectively.”
“But while this convergence trend is both logical and anticipated, it is creating a conundrum: as ILS funds evolve their business models to look more like traditional reinsurers, they are diluting the differentiation of the very offering which has proved so attractive to date for major primary buyers.”
John Cavanagh, Global CEO of Willis Re, added: “The April 2015 renewal season has reinforced current trends and the market continues to favour the buyer.”
Cavanagh said there are no signs that the current tide of falling rates and widening terms and conditions will be reversed.
He claimed diversification is now the “key competitive advantage” in the reinsurance industry, and the ability to deliver a differentiated service offering is critical.
Cavanagh concluded, “As investment banks rush to orchestrate the new model reinsurers of the future, previous views about possible M&A transactions are being challenged, including any thoughts that size may be an obstacle.”
“As ever, the key to a successful transaction is demonstrating that the combination of two entities is greater than the sum of the two parts.”