A Different Market Pulse

In many ways I have learned more since starting Squared than in the years of executive life that preceded my time as a consultant.

Over the last months, I have worked to support a start up reinsurer, tested the feasibility of a reinsurance MGA, explored how to embed A.I. and machine learning into the end to end (re)insurance business process, and conducted due diligence on an M&A target.

Each of these experiences has been rich in insights, and I have learned a lot.

Alongside this I have worked on numerous small projects which cover a broad range of themes in the insurance world, and, viewed together, give an overview of the topics on the minds of industry leaders, and potential investors.

As an executive, one’s focus is on the portfolio - recent results, and the next planning cycle or renewal season. It can be easy to miss the forest for the trees. It seems that working as a consultant on numerous projects brings a totally different market perspective, which is much more rounded.

It struck me that this is a market pulse that I had never tapped as an executive, and I thought others might find the insights that I have gathered of interest.

What I observe from the pulse of the market.

There is plenty of risk capital in the market. Results have been great, however I sense from the incumbent players a nervousness about the longevity of current positive underwriting results. Growth remains a theme, with plenty of innovation and investment appetite for industry disruption. The market seems highly polarised between these themes - I call them C&G and poor cousin P.

The C word - Costs.

Over recent months, I have observed an increase in inbound queries around optimising efficiency and reducing costs. A big theme from large companies seems to revolve around productivity. Common questions include;

“What’s the best operating model?” - with companies seeking insights into centralisation, offshoring and business process outsourcing.

“What has worked in the past, and why?”

“What is the best practice in ‘resource reallocation’?”

I also observe a lot of interest in I.T. landscape improvement, some typical queries;

“How have companies managed the transition from legacy systems to more integrated landscapes?”

"What is the best practice for managing data sets?”

“How to compete with younger competitors with newer systems solutions?”

There’s a lot to say about A.I. and M.L. application in the (re)insurance value chain, and this does come up as part of the cost topic. My sense is that the interest here really just scratches the surface of the opportunities. That’s a subject for another day.

The G word - Growth.

Queries around growth and new business development tend to be from potential investors. There is a lot of energy around industry disruption. Common themes du jour ;

MGA’s & Reciprocals

While today in the industry, it seems that the MGA model has expanded to its natural limit, investors remain interested in capital light models. I have had numerous queries around MGAs and a few on reciprocals. How to set them up, how to differentiate, strengths and weaknesses in the model, and risk management and control mechanisms. My take is that, while it seems that PE capital exits have been challenging, there is further appetite to explore new entries.

Products and Ventures

Interest in new products seems to stem from disruption themes. I observe interest in products to support the litigation funding industry, parametric and index solutions in various guises, and products to innovate coverage into risks that have been recently excluded from broader coverage. My take is that, as the market has hardened, capital sees an opportunity to step into the gap between market appetite and consumer demand.

The P Word - Profitability

What has surprised me is that I observe little energy currently on the theme of profitability. I call this the poor cousin in the mix. My take is that underwriting results are good, so the mood is to make hay while the sun shines. The underwriter in me argues that now is exactly the time to invest in securing future underwriting profitability, but that seems not to be front of mind.

Bringing this together.

Admittedly, I have a small data set to go on here, but I would hazard a guess about where the market is right now.

The picture that I would draw is that, while market profitability is good, growth in existing portfolios is expected to slow. Companies are looking to shave combined ratio points through the cost line.

Meanwhile, new capital formation has been limited, and focussed in disruptive and capital light spaces. There are some signs, Aspen et al, that the IPO market will add incrementally to capital inflows.

The casualty cycle continues to niggle, but so far reserve strengthening has been covered from WCA and short tail profits.

The market feels as though results will erode from here on. I’d expect (and hope) to see the forward looking underwriting leaders focus on approaches to manage profits before the pain hits.

Meanwhile, it is fascinating to observe the market from a different vantage point. I have enjoyed the various projects that I have worked on over the last months. I have shared a lot of my experience with clients, and been delighted to have learned so much along the way.

Looking forward to the coming months and new client challenges!