Page 6 - WTW Asia Insurance Market Report
P. 6

Is the Market Changing?
Cliff Jeyes

For many years “Hard” and “Soft” have been the prevalent terms used to
describe the current status of the market cycle. Is this now an outdated way
to reflect on market conditions? Rate movements are more marginal than
ever and significant data allows both clients and markets to be tactical in
their buying and underwriting strategies, suggesting that we, as an Industry,
have moved on to a new normal.

As you will see in the rate analysis of 2016 and expectations        In addition, distribution models continue to change, and at
for 2017, all lines continue to comment that the rates are           a rapid pace. The model between client, broker and insurer
at an unprecedented low. However, the laws of supply and             has been disrupted as the role of distribution and capital
demand continue to exist and the abundance of capacity               blurs, allowing alternative capital, MGA’s and reinsurers to get
drives significant competition for premium volume. None of           closer to the client in the battle to gain control of capital flow.
us have a crystal ball to determine what the future will bring       We are now seeing the next iteration of this model through
in respect of underwriting results, but it is fair to say that with  InsurTech, which challenges us to create the best solutions
top line premium volume difficult to achieve, there has been a       delivered in the most efficient way to the buyers, challenging
reliance on reserve releases to meet bottom line targets, as         the traditional principles of insurance transactions. The
investment returns no longer exists in its previous guise. What      distribution and efficiency of where and how business is
will happen if this well runs dry?                                   traded, we expect, will be an ever present theme as all parties
                                                                     continue to try and produce adequate margins. Control of
Currently, insurance remains an attractive investment vehicle        premium volumes is becoming increasingly important on both
due to a lack of major losses and favourable returns on              sides of the fence, with consolidation leading to greater focus
capital. However, there are now a number of factors that             on portfolio management and the creation of facilities and
suggest a potential shift in this paradigm. Imagine if reserve       panels as efficiency gains and control are sought.
releases run out, market events lead to poor underwriting
results, interest rates remain low and investment returns fall.      A lot of the questions being posed are not answerable yet;
There is no question that if all these factors strike, the model     nevertheless, what is clear is that the winners will be those
would be ripe for change. For the time being, ongoing M&A            who have the ability to adapt to this dynamic and changing
activity coupled with new market entrants are potentially            environment and to deliver more comprehensive solutions to
diluting the effect of this shift, and are giving new variations to  their clients.
the market cycle.

                                                                     Cliff Jeyes is the Head of
                                                                     Broking, Asia and the Head of

                                                                     Facultative, Asia.

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