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Reactive vs proactive: Industry figures debate in Monte Carlo

During a debate hosted yesterday (10 September) in Monte Carlo by The Insurance Insider and PricewaterhouseCoopers (PwC), top industry executives discussed the dilemma facing reinsurers in search of sustainable profitable growth in a fast-changing world.

To set the scene, PwC partner Alex Finn took the case of reactivity, arguing against firms chasing growth through inappropriate expansion into new territories and risks. He said that established entities are just not that good at changing and should focus on core competencies and products.

However, Arthur Wightman, a Bermuda-based PwC insurance partner, countered that the global risk market has changed and that there is a necessity for reinsurers to be proactive and push the boundaries of risk transfer and innovation, citing the fast growing alternative reinsurance market.

In an earlier report PwC said that the alternative reinsurance market could offer the traditional sector new fee opportunities and free up capital and underwriting resources to allow reinsurers to concentrate on new, more profitable risks.

During the annual Monte Carlo gathering, the firm said the insurance-linked securities (ILS) market increasingly represents a complement rather than a competitive threat to the traditional sector.

Flush with pension fund cash and sizeable inflows of investment from China, the Middle East and other emerging markets, the ILS market is continuing to grow as more traditional participants set up their own ILS vehicles, teams or segments.

"As some routine areas of reinsurance become more commoditised, competition from the capital markets for risk transfer was always inevitable and is likely to increase," said Achim Bauer, PwC's UK insurance consulting strategy leader.

However it is possible to harness the ILS market's evolution.

Reinsurers should provide expertise to ILS sponsors for a fee and take advantage of the new capital sources and better blend of risk transfer options, PwC said.

The growth in the alternative sector could also allow some routine risks to be transferred off traditional reinsurers' balance sheets and onto those of capital markets players.

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