Although the 2017 hurricane season was the costliest in U.S. history, the demand from capital markets for reinsurance risks is unlikely to diminish.
As 2018 begins, what key trends will shape the coming year, and how can you position yourself to capitalize on them? 2017 was a tumultuous year for the reinsurance industry, so, which reinsurance themes will carry over into 2018, and how is the industry positioning itself?
1. Cyber: software is eating the world
With the relentless invasion of software into every aspect of our lives, you see businesses, governments and consumers all wanting to cover their cyber risks through comprehensive reinsurance policies. The issue is that the pervasiveness of software exposes many more lines of reinsurance to cyber risk than is first apparent. How then can the reinsurance industry be more dynamic in understanding and pricing these aggressive and fast-evolving risks in a timely and efficient manner?
See also: The Dawn of Digital Reinsurance
PCS made an important step in September by launching a Global Cyber Index
to provide industry loss estimates for international cyber events. The creation of the index is the first step to developing cyber-focused insurance-linked securities (ILS) products.
2. Alternative capital will continue to be important to the reinsurance market
Although the 2017 hurricane season is projected to be the costliest in U.S. history, the demand from capital markets for reinsurance risks is unlikely to diminish. Trapped collateral and ILS losses may put off some existing investors, but new investors looking for uncorrelated returns will continue to enter the marketplace.
With around $30 billion of outstanding catastrophe bonds and ILS, 2017 saw historic levels of catastrophe bond issuance. This has encouraged the U.K. government to support the growing market by approving new Risk Transformation and Tax Regulations
last week. The impact of these regulations will be fully tested in 2018, but, as the market grows, increased transparency and the ability to trade ILS products on a secondary market will be aided by the appearance of electronic marketplaces.
3. Technology developments will continue to improve the reinsurance industry
The pace of innovation and change, driven by technology, across the reinsurance industry gathered momentum in 2017. At AkinovA
, we continue to work with a number of the leading re/insurance market participants to build an independent third-party marketplace for the transfer and trading of risk.