Ultimate backstop of major climate events, such as hurricanes, US convecting storms and earthquakes, of macro-economic uncertainties and ongoing inflation, and of war, the reinsurance industry is battling uncertainty on a massive scale
Looking beyond volatility, hard-hitting, exposure to cumulative natural catastrophes and geopolitical risk, the industry is essentially defined by a thoughtful financial strategy, pricing the risk with care, structuring investment float in relation to the type of risk exposure and deploying the capital over – on average - extended pay-out periods
2023 reinsurance contracts negotiated with primary insurers are marked by sharp rate increases, extending the run-up engaged since 2017, specifically for the major risks covered by the leading reinsurers
Source - RPM US (May 2023)
Buffet’s Berkshire Hathaway
The strategy so successfully put to work seems to attract two very different investors
- cash rich investors such as private equity funds, unable to deploy their resources in an over-priced market, hoping for a better return
- industrial concerns hoping to diversify and – when the time is ripe – to allocate some to the float to investments and acquisition strategies
The dynamics of the reinsurance sector are in for more surprises…