Soft market conditions continue to be the biggest concern for the industry, followed by regulation, competition from third party capital, low investment returns, cyber crime and maintaining underwriting discipline, according to a survey completed by Xuber, the insurance software business of London-based Xchanging, a CSC company.

The soft market was named by one-third (33 percent) of those surveyed as the biggest concern for the industry with 74 percent of all respondents naming it as one of their top five challenges, said the second annual Xuber Global Reinsurance Survey.*

“The soft market is inextricably tied to other problems facing the industry,” said a London executive who was quoted in the survey report. “As the market softens still further, problems are being stored for the future and companies that do not act in a disciplined manner may well suffer later on.”

Regulation was the second most pressing concern, named by 18 percent of survey respondents as their number one concern. “Almost seven out of 10 (69 percent) listed it in their top five challenges – a sharp increase on the 51.2 percent last year,” the survey said.

Nearly half (49 percent) of respondents put competition from third party capital among their top five concerns. “The amount of third party capital entering the re/insurance markets in the form of insurance linked securities (ILS), such as catastrophe bonds is at record levels – and all indications are that this will continue to grow.”

This abundant alternative capital is creating “fierce competition between reinsurers and third party providers, which is driving down the rates reinsurers can charge,” Xuber explained.

“Improving investment returns in a low interest environment was ranked fourth with 46 percent naming it among their top five concerns…,” the survey found.

Rounding out the top industry challenges were cyber crime and maintaining underwriting discipline, which were tied at 44 percent, Xuber said.

Cyber Crime

Many respondents were concerned about the rapid increase in cyber crime in recent years and the problem the industry faces in trying to understand and price it sensibly, the survey indicated.

“The complexity of the risk and the lack of skills in-house to assess risk are the main reasons preventing reinsurance companies from being better prepared against cyber attacks,” said the Xuber survey report.

Underwriting Discipline

Underwriting discipline is an important issue in a soft market when there is plenty of available capital, the survey indicated. Reinsurers are “between a rock and a hard place because you have got capital and you can’t sit there and not write business,” said one executive, quoted by the report.

“You know, on the other hand, that you are not going to make much money from investing and that regulators and rating agencies are saying you have to be in credit-free risk,” the executive continued. “But if you underwrite it and lose money, that will happen a few years down the line, and if you don’t underwrite business, then your return on capital goes down and shareholders will walk away.”


The survey found that in the midst of the many challenges facing the industry, “there are great prizes to be won for those who are the quickest and cleverest to adapt.”

Diversifying the portfolio was seen as the number one opportunity, with 73 percent of respondents placing it in their top five, followed by mergers and acquisitions (65 percent). Security and the need to upgrade technology were also listed in the top five industry opportunities.

“Those who manage the threat of the soft market best will place themselves in an ideal position for the future,” said an executive who was surveyed. “Diversification of risk and careful expansion into fresh non-correlated areas will also help form a sound basis for future growth.”

“The great financial crash of 2008 unleashed a series of regulatory changes across the globe to improve understanding of risk and bolster capital standards to ensure that calamity is not repeated,” said the survey.

While this has resulted in a heavy regulatory burden, it continued, some survey respondents believe it has also provided opportunities.

For example, improved modeling is central to the Solvency II capital standards regime, the survey report said, quoting an executive who said: “The biggest opportunities will fall to those who can model the newer risks properly so that they understand them better than their competitors.”

There are also opportunities for traditional reinsurers to work with third party capital, rather than viewing it as a direct threat. “Traditional reinsurers realize they have the deep understanding of catastrophe risk that the capital markets do not, and they are using this knowledge to take capital from third parties and invest it for them,” said the Xuber survey report.

Mergers and Acquisitions

The enormous number of mergers and acquisitions (M&A) in 2015 was driven “by acquirers’ desire to expand geographically and into new products and distribution channels; to achieve scale and stronger client relationships; and to more effectively utilize existing capital through diversification.”

Ninety-seven percent of survey respondents named “cultural integration” as the top challenge reinsurers face with M&A. This was followed by operational alignment (87 percent), distraction from business as usual (85 percent), integration of multiple systems (74 percent) and duplication of resources (54 percent).

“As Stephen Catlin has said repeatedly about the deal with XL, it doesn’t matter how much you spend, or don’t spend, on an acquisition, unless the two businesses can be culturally integrated, you are defeated from the beginning,” said the report, quoting an executive.

Brexit or No Brexit?

Opinions were split on the impact of ‘Brexit’ on the London market, if the UK votes on June 23 to leave the European Union, the survey revealed. “Almost two-thirds (59 percent) thought it would have a negative impact, 15 percent it would have little or no effect, and 26 percent said they didn’t know the impact.”

However, not a single respondent thought that Brexit would be a positive development for the market.


The overwhelming message from the survey was that business as usual is no longer feasible for the industry, which must embrace innovative new technologies. Indeed, 79 percent strongly agreed that “technology will become more important in driving the success of my business.”

“The way insurance is being bought, sold and managed has changed, and the survey results suggest the industry must take an innovative ‘digital first’ approach in order to maintain relevance with clients,” said Chris Baker, executive director, Xuber.

Reinsurers that create technological solutions that “deliver across the insurance value chain will best serve their customers and will thrive in the digital revolution,” he said.

Baker noted that there is an “almost universal consensus that a fundamental technology shake-up needs to happen now. The time to innovate has arrived.”

* Reinsurance professionals from London, the United States, Switzerland, Canada and Bermuda took part in the Xuber survey, which was conducted by email and telephone interviews in April and May 2016. While some of the respondents asked to remain anonymous, the full list of participating companies is available in the report.