Johal, who is the firm’s global specialty and reinsurance leader, said that over the medium term he expects to see reinsurers with large balance sheets diversify their products and services as pricing strategies become more sophisticated, while smaller reinsurers will seek growth through niche segments.
“I think there’s going to be a question mark around potential bifurcation of the market,” he said.
“If you’re a scale player, of which there are four or five right now in our industry, you can see them really doubling down on certain markets as others retract from it.”
He added: “You then look at the other side, you’ve got the niche players – typically the $5bn to $7bn mark premium size – for them it’s around what really gives them the competitive edge.”
The larger players typically show an appetite to write geographically diverse business – some catastrophe-exposed – because they have large enough balance sheets to diversify their portfolios. The losses from Hurricane Ian will accelerate this.
They also have the analytical capabilities – such as robust catastrophe models – to provide superior pricing insights into these types of risk, Johal noted.
On the other hand, players with smaller balance sheets will compete for market share through leveraging superior analytical skills in specific markets, agility in capitalising on opportunities, accessing distribution in different ways, or leveraging their balance sheet to get the scale in a different market, Johal added.
“It will be interesting to see how the market evolves over the next five years,” he added.
A fast-moving market
Johal spoke with The Insurer TV in the context of Deloitte’s new report which has been published today – Adapting to an evolving market: Future reinsurance trends – which outlines the key themes for the industry and its outlook, building on some of the trends identified in the firm’s previous 2020 report.
Macroeconomic, environmental and competitive market forces at play are having a significant impact in the reinsurance market, the report highlighted.
Reinsurers have had to steer their strategies to address the steep rise in inflation, for instance, but challenges around the sustainability of rate rises could intensify as a result.
The report added that action in the ESG space will be accelerated by pressure from activists in a market where underwriters already face difficult choices around policies and criteria.
At the same time, market players continue to compete to attract capital and investment opportunities across different parts of the value chain.
The report also identified some of the trends to have shaped further since 2020. They include the pivot towards a “risk transfer plus” model, the ongoing influx of alternative capital, the “blurring” of value chain boundaries, the rise of automated placement, and the rise of exchange-based secondary markets.
In addition, the report details consolidation in the industry, which has been more prominent on the broker side compared with the carrier side, a trend Johal said was “faster than we expected”.
“The carrier space has been more interesting, partly because it’s been more volatile when you have balance sheet companies looking at it and there’s more risk, so the attractiveness varies depending on where you’re coming from,” he reflected.
“When I look at consolidation, and we looked at the trend, the multipliers have been more attractive in the distribution space than the carrier space.
“We expect that to continue and I don’t think any of the challenger brokers or the carriers that are at that tipping point of scale are going to be resting on their laurels; they’ll be looking to do something else around that area,” he added.
Competing for talent
The challenging nature of the industry also extends to the sourcing of talent. Nurturing a talented workforce in the (re)insurance industry has become a wider challenge that involves making it attractive compared with other industries.
Johal referred to developing and retaining talent as “one of our biggest challenges”.
“The reinsurance industry is at one of its most exciting tipping points with capital coming in, lots of uncertainty in the world, volatility increasing and lots of what I call the confluence of the capital markets with the reinsurance market. This is a great time to be part of this industry, but how do you make it more attractive to people? How do people get excited about [it] and see a career there?” he asked.
Talent scarcity has become a topical debate across the market that has led to the launch of initiatives targeting a potential drought.
For instance, the London Market Group recently launched a long-term campaign across the UK designed to make the London market a more attractive destination for professionals.
In conversation with The Insurer TV, president of underwriting for Liberty Mutual Insurance Global Risk Solutions and chairman of the London Market Group Matthew Moore warned that the industry “hasn’t done a good job” in attracting talent into the London market.
Johal alerted to the need for diversity to be featured more across the market.
“What I find really exciting is the amount of new talent joining us who are excited about it, with some fantastic different backgrounds, and how we actually help develop them and retain them is going to be one of our biggest challenges,” Johal concluded.
During this 16-minute interview, Johal provides further detail on:
- Key themes from the roundtable discussion hosted by Deloitte and The Insurer during this year’s Monte Carlo Rendez-Vous
- Key topics in the Future Reinsurance Trends report
- ILS shifting its focus to non-property lines of business
- The pressing need to focus on talent in the (re)insurance market