London to Face reinsurance hub challenge?
Leading insurance publication Insurance Times reports on the challenge to established reinsurance hubs in London, Bermuda and Zurich from new locations including Singapore, Dubai and Miami.
reinsurance has been focused around hubs in London, Bermuda and Zurich, but now
emerging centres such as Singapore, Dubai and Miami are developing as
reinsurance capacity suppliers want to get closer to their clients and
producing brokers in these booming regions.
The question is, could these new
players ever outcompete or even replace the old guard?
The figures certainly paint a picture
of muscular growth. Over the past 10 years, the emerging insurance markets have
shown much faster compound annual growth rates than the mature ones – a range
of 12%-20% versus about 4% – according to research by AM Best.
“It comes as no surprise that the
reinsurance centres, which cater to these markets have grown considerably too,”
Qatar Re chief executive Gunther Saacke tells sister title GR.
“Going forward, emerging markets will
continue to outpace growth in mature markets as insurance penetration in
emerging markets is at a mere 4%, compared to more than 7% in mature markets.
Asia Capital Re specialty lines vice
president Paul Trueman argues there are two reasons for this boom: the growth
in the volume and complexity of risk needs in the expanding markets means
greater demands and expectations of reinsurers.
These are best supported by locally
-based claims, underwriting and broker service, the lower operating cost
environment in the developing regions and the relocation of human capital to
these expanding hubs.
Trueman says: “However, I do not see
major reinsurers leaving the traditional hubs anytime soon given their
historical standing and access to more mature and currently better regulated
“What we are likely to see instead is
an expansion of the hub mentality in terms of premiums written, experienced
personnel in these hubs and delegation of authority from the home base."
“Those reinsurers who do not buy into
this approach stand to lose out in the medium to long term to both reinsurers
who are more progressive in their thinking and expanding domestic insurers.”
However, if emerging markets do
continue to assume a larger share of the total reinsurance business, then the
relative importance of the traditional hubs such as London or Zurich will
“Whether they will maintain or even
increase their size in absolute terms will depend on how well they are able to
capture new opportunities and respond to emerging challenges,” Saacke says. “Be
it in terms of products, such as cyber, or be in terms of new
solutions, such as convergence
vehicles and other forms of providing offerings in combination with alternative
capital, as we already witness in London.”
Willis Re International chairman
James Vickers agrees: “Traditional hubs such as London of course have to
evolve. This evolution needs to come from the recognition that there is a
difference between the actual transaction and the intellectual property and
skill behind advanced risk quantification leading to the development of
appropriate client solutions, which ultimately drives higher insurance
In addition, the old hubs are
attractive to expansive reinsurers based in emerging markets. “Lloyd’s pursues
a dedicated strategy to benefit from this,” Saacke says.
Even new technology – which has
already changed so much – will not be able to replace the need for human
contact. If anything, human relationships could become more important in an
increasingly globalised, networked world.
GIC Re chairman Ashok Roy says:
“Today, when we have everything moving slowly on to online and cloud, and the
growth of the internet of things, the very existence of reinsurance hubs gets a
“But then it is always the proximity,
the networking and relationship that matters more in our industry.”
Ultimately, it seems that the
importance of the old hubs is unlikely to change anytime soon – even if they
may become relatively less significant in a more crowded market.
“Although large parts of our business
may become more commoditised, transactional and automated, reinsurance will
continue to require strong and reliable relationships between the market
participants,” Saacke says.
“The human factor and the personal
relationships will continue to matter as they always did. This, by the way, is
particularly true for specialty business, where expertise and experience are
essential ingredients – and these are concentrated in the traditional (re)insurance
“In addition, more business is
written and ceded regionally, a trend which has accelerated the growth of hubs
such as Singapore and Dubai.”
Ultimately, specialty insurance and
reinsurance requires specialist knowledge and expertise, and that talent cannot
be everywhere at once.
“It is difficult to see that highly
specialised knowledge will ever be evenly spread across the globe,”Willis Re’s
“Naturally expertise will tend to
congregate into hubs. These hubs may change, and some may expand or contract,
but conceptually, centres of excellence for specialty insurance will be
required into the future.”
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