2016 Outlook: What will the New Year bring?

Excerpt from Reactions, "2016 Outlook: What will the New Year bring?"

The near-term outlook for the (re)insurance industry is choppy. We remain in a soft market, and I don’t see that changing anytime soon. The industry’s returns have looked pretty good over the past few years because of lower catastrophe losses and positive prior year loss reserve development. But, it’s always important to be planning for the near-term, the medium-term and the long-term.

Near-term, we’re seeing reinsurers getting squeezed from all sides. There’s more competition coming into the market from hedge fund-backed startups, and there is still ever more ILS capital providing cost-effective solutions to buyers. At the same time, buyers are retaining more risk as their capital models mature.

Not surprisingly, many reinsurers are transforming themselves into insurers, and you also have other parts of the distribution chain trying to do more – like insurance wholesalers doing deals directly with the capital markets. This all results in more competitive pricing as new entrants come into the insurance marketplace.

There are, however, near-term growth opportunities for those who can truly differentiate themselves by something other than price. But, if the only way you have to enter a market is through price differentiation today, you’re just buying yourself losses in the future. We are pursuing opportunities to differentiate ourselves and growing those segments where we are able to offer exceptional service. We’re also seeing market disruption driven by technology – albeit a decade later than other industries.

Many in our industry are too focused on the present and not investing in the medium- and long-term future. We are introducing new products today because of investments made two or three years ago, and some of the things we are working on today will come on line in two or three more years.

The longer-term horizon looks good for those who have a really good sense for where the market is going, where the opportunities are, and exhibit a bit of patience during this time of choppiness. Disciplined underwriting is always part of it, but it’s having the patience to allocate capital when it’s more appropriate, which may not be now.