Is the reinsurance business model being challenged?
Traditional reinsurers earn returns from underwriting risk and from investing the premiums they hold until claims are paid. Low interest rates, alternative capital and changing risk patterns have all put pressure on this model.
Capital-market investors can provide catastrophe capacity at lower cost, while primary insurers with strong balance sheets may buy less reinsurance. At the same time, new risks such as cyber and climate change create demand for expertise.
Reinsurers have responded by diversifying, investing in data and analytics and offering services beyond pure capacity.