The current dynamics in the reinsurance market - Global Banking | Finance (2024)

Gerardo García, President & CEO of Barents Re Reinsurance Company, Inc., discusses the current dynamics in the reinsurance market and the rationale for the company’s decision to redomicile to the Cayman Islands earlier this year

Market Dynamics

Bonds and Energy have been core business lines for Barents Re for many years and we continue to look for new profitable growth opportunities. With regard to Bonds, we believe that the growing trend of reinsurers and banks collaborating on complex transactions will be an important facilitator for large-scale projects, notably in regions such as Latin America and MENA where we are especially strong.

Energy is an inherently hazardous industry with the added complication of geo-political issues to be grappled with at the same time. We are seeing an increase in the number of national oil companies becoming supra-national along with independent oil companies growing in scale. This has led to greater concentrations of risk and the potential for large, vertically integrated losses. As a result, substantial responsive composite and specialist underwriting capacity continues to be in demand. Barents is in a position to provide such.

For Marine and Property, the key issue this year has been the response to the major catastrophe events of 2017. The multiple events of 2017, most notably Hurricane Maria, did not produce an upturn in Marine market pricing and a change in restrictions on terms and conditions as some may have expected. The impact on the yacht/pleasure craft book in the region has been considerable as it has been essentially wiped out for many years to come. That said, capacity in the Marine market appears largely unconcerned by the events of 2017. Property has remained relatively stable to date following the unprecedented windstorm and flooding events related to Hurricanes Harvey, Irma, and Maria coupled with the two Mexican earthquakes last year.

For longer tail business such as Financial Lines, the market conditions have been generally stable although there are pockets where the market remains extremely difficult. The market has witnessed rate increases in a number of Financial Lines sectors in the past year following year-on-year reductions, notably Professional Indemnity, Directors’& Officers’ liability and Crime. Furthermore, deductibles have also been on the increase with underwriters taking a more assertive approach in imposing coverage restrictions.

We see opportunity in Life and Accident & Health reinsurance not least due to the expected growth in the market forecast in the mid-single digits in the years ahead. Globally, this market is valued at USD 76 bn and, although considerably smaller than the non-Life reinsurance market, we believe that there are opportunities for a niche reinsurer such as ourselves to provide the Life reinsurance coverage which clients in specific regions are currently lacking. Foremost amongst these regions are Latin America and South East Asia. Population growth, improving mortality rates and changing regulatory regimes are all powerful drivers in the Life reinsurance market and we intend to take advantage of opportunities as they arise.

Redomicile to the Cayman Islands

We took the decision to redomicile the company to the Cayman Islands because it offers a range of benefits including a robust legal structure, a positive long-term credit outlook and a stable political environment. One of our main drivers was to build our reputation and credibility with clients, business partners, regulators and rating agencies. After extensive research of potential territories, the Board of Directors, shareholders and advisors concluded that the Cayman Islands was the best option to achieve our goals.

In summary, the principal advantages of the Cayman Islands are:

• The Cayman Islands is an important financial centre, with good communications and general infrastructure that has helped the country become the world’s fifth largest banking centre and largest hedge and investment fund domicile with over 9,000 funds registered. As of 31^st March 2018, over 720 insurance companies were registered in the Cayman Islands.
• The Cayman Islands operates a similar legal and financial framework to the United Kingdom and Europe – a region that continues to form an important part of our growth strategy. Added to this, their official language is English, which is also the official language used by Barents Re Reinsurance Company, Inc.
• The Cayman Islands is an autonomous British overseas territory which may prove to be beneficial as part of our Brexit planning.

The move also benefits our customers and business partners as they continue to receive the same high levels of expertise coupled with the reassurance which the Cayman Islands provides as a financial services jurisdiction. The reputation and credibility of the company’s new regulator, the Cayman Islands Monetary Authority, have also proven to be especially advantageous. We are now six months into the new regime and we have been delighted with the positive reaction from our clients, business partners and wider stakeholders.

From a ratings perspective, the move is particularly beneficial as the Cayman Islands maintain a Country Risk Tier of 2 (low) under A.M. Best. Given that the rating of a company is influenced by the jurisdiction where the company is established, the Cayman Islands’ long-term outlook is seen as a positive benefit in favour of the A.M. Best rating.

In conclusion, this move represents an important and positive step in the development of Barents Re and its relationships with all its clients and business partners.