Rather than simply limiting growth in soft markets, reinsurers should actively use periods of market weakness to prepare and position themselves for the next hard market, Oxbow Partners said.
According to Oxbow research, the most successful reinsurers achieve their best inter-cycle performance by pursuing growth throughout the cycle.
After years of superior profitability, peak pricing, and strong capital buffers from 2023 to 2025, the market cycle has begun to turn.
Oxbow analysts said: “It is clear that we are at or have passed a turning point in the cycle. In addition to a challenging pricing environment, reinsurers face higher costs of competition due to increasing investment in technology and data, and must remain relevant as traditional and ILS capital floods the market. The industry’s aging population adds urgency to the transformation agenda.”
When entering a weak market, reinsurers will instinctively choose a defensive strategy, dedicating “cycle management” meetings to reduce exposure and protect against downside risks. However, Oxbow’s research shows that this defensive posture is “the wrong instinct.”
True cross-cycle outperformance is not achieved by limiting growth during weak market phases; instead, the best-performing reinsurance entities actively seek expansion across all market cycles.
While major profits are secured during hard markets, soft markets separate outperformers from underperformers, with the former using the period to prepare for the next hard market and the latter retreating.
To outperform in the next cycle, outstanding reinsurers will focus on five key themes
Have a clear strategy for soft markets; find your “edge” – critical to driving superior performance and the motivating reason why a company is better than others; stop treating every relationship the same; communicate consistently with every stakeholder; and use AI to effectively scale the business, not just cut back on management.
Oxbow concluded: “The winners in the next market will be those who maintain a winning mentality in a weak market and do not give up on long-term performance. They will use the next five years to find and explain their ‘edge’ to stakeholders and build the assets that enable them to win.”
