“The rapprochement between insurers and reinsurers, an “industrial evidence”?”  – the platform of Cyrille Lachèvre

“The rapprochement between insurers and reinsurers, an “industrial evidence”?” – the platform of Cyrille Lachèvre

For the insurer, the equation is complex. Presented somewhat summarily, his job consists of compiling as many statistics as possible to calculate the probability that a risk will occur and thus determine what amount of premium to make his subscriber pay to obtain a viable economic model for both parties. But what to do when you can no longer predict the future as well as before?

Another actor also finds himself under strong pressure: the “reinsurer”. Less known to the general public, because it is very rarely in contact with the final subscriber, the reinsurer is “the insurer of the insurer”. It takes over part of an insurance company’s risk portfolio to relieve the pressure on its own funds and enable it, among other things, to continue to offer insurance to as many people as possible.

Insurers and reinsurers are today faced with the same challenges and this is pushing a number of players – logically – to consider mergers that would be beneficial to both sides. According to figures compiled by Atlas Magazine, for the insurance and reinsurance market as a whole, no less than 640 mergers and acquisitions operations were recorded with a total value of 122.79 billion dollars during the first eight months of 2021. The total value of these operations for the whole of 2020 amounted to 82.53 billion dollars. In recent years, several major merger movements have been made between insurers and reinsurers, such as the merger between AIG and Validus in 2018 for 4.54 billion euros or even, the same year, between Axa and XL for 12, 4 billion euros.

The economists Olivier Pastré and François-Xavier Albouy sum up the reasons for these rapprochements well in a study published on behalf of the Choiseul Institute, The future of post-covid reinsurance: “The global economy needs reinsurance to is developing so that insurance can effectively cover the risks faced by its customers”, they point out. Faced with runaway catastrophes, “the potential demand for reinsurance has never been higher and this market is in dire need of capital and rapid innovation. The years 2017-2018 saw high claims amounts and above all concentrated on a few events, showing an intrinsic weakness of the reinsurance markets which can absorb very large events but have difficulty managing an accumulation of events”.

capital and time. What do reinsurers (like insurers for that matter) need the most? capital and time. Capital enables shocks to be absorbed and time enables unforeseen events to be smoothed out, thus reducing volatility. “The two are inseparable, explain Olivier Pastré and François-Xavier Albouy. Capital makes it possible to survive hazards and to plan for the long term. Time makes it possible to accumulate capital and put volatility back in its proper place, that of the foam”.

The challenge for the reinsurer is to raise sustainable capital. For this, he has only two solutions: obtain the signature of the State as a guarantee (this is the case in some countries) or else rely on insurers, first and foremost mutual insurers. Why these more specifically? “Because their statutes push them to reinvest most of their profits, which offers them the strongest equity”, conclude the economists who see it as “industrial evidence”.

This is the whole meaning of the merger operation underway between the French Covéa and the Bermudan PartnerRe, the world’s number 12 reinsurer – the first, which notably includes MAAF, MMA and GMF, having offered 7.8 billion euros. to Exor for the purchase of the second. A marriage that could turn out to be particularly happy for Covéa’s professional customers, who will be able to benefit from the fineness of the data collected by PartnerRe internationally, and therefore from expert advice on exporting.

The competition authorities are keeping a close eye on these mergers, believing that they could present a risk of unfair competition on the market by allowing players to process more data and therefore to have a competitive advantage over others. But in reality, the borders are already increasingly porous, with reinsurers offering insurance contracts directly and insurers who, moreover, face competition from new players from the industrial world in certain segments, such as automobile or energy. The market should therefore continue to see the emergence of new heavyweights, born of the merger of complementary players. Not a luxury these days.

Cyrille Lachèvre is the founder of the Cylans agency.

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