EY Bermuda warns reinsurers that slow decisions carry the bigger risk

Reinsurers that fail to adapt could be left supplying lower-margin balance-sheet capacity while other participants capture the more valuable relationships and fee-generating business, partners at EY Bermuda say. The warning comes in an interview with The Royal Gazette about the firm's report, "The future of reinsurance: welcome to the post-predictability era", which examines the pressures on traditional reinsurers. Rapidly advancing technology, abundant alternative capital and changing customer demands are transforming the industry, according to the report's authors.

Simon Burtwell, an EY Bermuda partner and regional consulting leader who contributed to the report, said the traditional model, in which companies largely wait for business to arrive, is becoming outdated. "I don't think anybody can afford to be a traditional reinsurer any more," he said, adding that the needs of cedants and their end-user customers, and the interests of capital providers, are changing fast. Craig Redcliffe, a partner and EY Bermuda's regional insurance leader, said speed of decision-making would be critical: "I think the biggest risk is increasingly going to be about making the decision too late — you could call it strategic inertia."

For allocators backing reinsurance risk, EY's argument suggests diligence moves toward the capabilities Redcliffe names — underwriting knowledge, proprietary data, modelling and claims experience — rather than balance-sheet size alone. Those same capabilities sit on EY's list of functions other participants could absorb, with brokers providing analytics and structuring and technology companies delivering sophisticated risk analysis, which would leave less of the analytical work inside the reinsurer.

Redcliffe warned of "strategic disintermediation" as other market participants take on functions traditionally performed by reinsurers. In the report's framing, MGAs could control the origination of business, brokers could provide analytics and structuring, alternative investors could supply capital and technology companies could deliver sophisticated risk analysis.

He said reinsurers are evolving from simply providing capital toward managing risk intelligence and capital more broadly. Underwriting knowledge, proprietary data, modelling capabilities and claims experience could be used to help insurers and MGAs design products, price risks and manage portfolios.

EY says the needs of clients, sources of capital and technology are evolving faster than many companies' decision-making processes. Burtwell described adaptability as the industry's greatest strength, with reinsurers finding new ways to deploy their expertise and capital.