The first-quarter 2014 launch of Watford Re has fueled a fair amount of market chatter—some centered on the potential for the new entrant to the casualty reinsurance space to drive down pricing.

Executive Summary

The popular view that new entrants to the reinsurance space must underprice competitors to gain a foothold does not apply in the case of Watford Re, according to CEO John Rathgeber. With a business model that factors higher investment returns into reinsurance pricing, Watford can meet the competitive levels of pricing already out in the market on business that currently falls below the return hurdles of established reinsurers that are achieving lower returns on their investments.

Existing reinsurers are worried about the startup compounding an already frustrating situation on the property side of the business, with a strategy to combine a casualty reinsurance underwriting platform with a high-yield fixed income investment strategy, an analyst at Fitch Ratings said. With correspondingly higher investment-return expectations than other reinsurers, “Watford Re could potentially accept lower-priced underwriting business, which is causing concern in the market,” wrote Fitch Senior Director Brian Schneider in an article he authored for our second-quarter magazine.

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