Navigating the future of insurance and reinsurance
The days of “scale for the purposes of scale” alone are going the way of the dinosaur.
Super large or “too big to fail” insurance (& reinsurance) companies will be like big whales waiting to be harpooned by shareholders or activist investors.
These companies will have all this excess capital and under-performing results… investors will demand it returned. Especially as other markets and sectors are returning better returns on the investment.
Insurance companies that have large balance sheets of low or under-performing bond portfolios, with decreasing underwriting margins =recipe for M&A.
See our article on what the Insurance industry learning from Baseball and what happens if you are still focused on scale alone.
Data & Analytics
Capital and Returns for Shareholders
Generating Underwriting returns has been and will be the future of the industry, but the competition is getting tougher with the recent entrance of new “total return” players.
These hedge fund based players are based upon minimal underwriting returns and maximizing the investment returns or float.
Although the total return model has come under stress with current equity markets, this isn’t anything new and new entrants will continue to be attracted to the float insurance and reinsurance offers. Similar to the philosophy of Warren Buffet and Berkshire Hathaway. I just don’t know anyone who has the track record to match returns with the “Oracle of Omaha”.
Mergers and Acquisitions
We can anticipate the smaller players will continue to serve as M&A targets.
We will see what results these teams have, as if they cant generate combinations of underwriting margins and strong consistent investment returns, it doesn’t sounds like investors will stick around as a good long term play.
However, readers please evaluate each investment on it’s own merits, the basis of both investment and underwriting returns (expected vs. actual).