The 'uncorrelated risk' argument for investing in reinsurance ought to be very attractive in the current environment but the fact that virtually all traditional reinsurers are trading at material discounts to tangible book value shows that the benefits of the more 'diversified' business model are far from obvious to the capital markets.
Too often, diversification is merely the justification for growth for growth’s sake. Instead, reinsurers need to rethink their strategy, more closely align their interests with those of investors and demonstrate how company strengths generate tangible value for shareholders. Reinsurers need to ask themselves why investors own their stock - or perhaps more pertinently, why they don’t?
Of course, capital markets pressures are far from the only consideration; industry fundamentals remain somewhat lacklustre and there are material changes to the business model on the horizon. Pulling these factors together, we’ve drawn insight from our Project Blue research to identify future scenarios that will impact the volume and location of reinsurance demand. Those companies that differentiate their strategy by focusing on strong leadership, anticipating future trends and assessing demand in the evolving global risk landscape will ultimately emerge as the industry’s winners and with renewed investor interest.