Reinsurers should be willing to stand should to shoulder with their ceding companies and provide more proportional reinsurance products for casualty business as a means of overcoming the shortage of growth opportunities, Aon Benfield has said.
Speaking on the first day of the industry's annual Rendezvous in Monte Carlo, executive chairman Michael O'Halleran described current conditions in the reinsurance sector as "tranquil" after a testing 2011 has been followed by benign ceded catastrophe conditions in 2012.
"The one thing that will be concerning everybody is what do we do next?" he said, referring to the challenges facing reinsurers to grow their top line and convince investors of their value proposition.
Aon Benfield said offering new products in the casualty reinsurance space could provide a "great opportunity" for growth if carriers were willing to adapt their approach to underwriting these lines.
"There is a lot of interest from clients for both property and casualty reinsurance as a capital solution, not just for reinsurance risk transfer solutions. If we can marry up those types of interests together and align them, there is a great opportunity for growth," O'Halleran explained.
Ceding companies currently view reinsurers as unwilling partners on casualty business that look to rig the deck in their own favour, he added.
"Unless reinsurers are willing to offer a much broader and more 'follow the fortunes' approach to casualty reinsurance, that line of business will continue to go down further and further," he warned.
Demand for reinsurance products for nearly all non-cat exposed business has declined materially over the past decade, Aon Benfield's chief strategy officer Bryon Ehrhart said.
Carriers had been slow to adapt to loss trends in the sector, making their products less relevant to what Aon Benfield describes as the "disappearing risk".
"In the underlying areas of casualty treaty, casualty facultative, property treaty and non-catastrophe - those have all seen declines in demand for reinsurance," he said.
"It's obvious now that the product that reinsurers have been selling for the last decade was the wrong product. Our clients have seen a decade of declining frequency, and quite manageable severity growth in that decade," he added.
One of the emerging themes of the Monte Carlo gathering so far is the challenge facing reinsurers chasing organic growth with stagnant economies in core markets.
With 2011 catastrophe losses in the Asia Pacific region still fresh in the mind, many in the industry are also still in the process of reassessing their approach to risks in emerging markets, particularly with catastrophe risk where carriers tend to have access to inferior data on loss histories and where model coverage is less available.
With the Monte Carlo meeting the traditional start to the shadow boxing match between brokers and risk carriers ahead of the 1 January reinsurance renewals, Aon Benfield pointed to record reinsurance capital of $480bn, improved profitability of reinsurers at the end of H1 and low ceded reinsurance losses as primary drivers of downwards pressure on rates.
However, it added there were opportunities to tap into demand for life reinsurance solutions as well as casualty reinsurance products.
Co-CEO of Aon Benfield Dominic Christian also pointed to opportunities stemming from the introduction of Solvency II regulations in Europe as a potential source of demand for products around reserving risk.