Closer ties between insurers and reinsurers

While these mergers allow ceding companies to diversify their activities, they also give reinsurers the opportunity to position themselves closer to the risk.

Insurers’ interest in the reinsurance markets

In recent years, several insurers have returned to the reinsurance market after having left it a few years earlier. This is the case of:

• Axa which ceased all reinsurance activity in 2006 following the sale of its subsidiary Axa Re (later renamed Paris Re). In 2018 The French insurer bought the Bermudan group XL for 12 billion USD.
• Covéa which has been making several attempts to re-enter the reinsurance market since 2018. It signed a memorandum of understanding with Exor in October 2021 to buy PartnerRe [4]. The value of the transaction amounts to 9 billion USD. In 2002, the mutual group sold Le Mans Re to XL Capital.

In addition to these high-profile returns, major direct insurance groups have also arrived in reinsurance. This is notably the case of:

• American International Group (AIG), which in 2018 acquired Validus for 5.56 billion USD. In 2019, the American group created AIG Re, which combines the activities of Validus Re, Alpha-Cat and Talbot under one flag.
• Berkshire Hathaway which, after having taken its first steps in insurance with the acquisition of National Indemnity and GEICO in 1967, entered the reinsurance market in 1998. The conglomerate has offered 22 billion USD to buy General Re (ex-Cologne Re).

Insurers’ ever growing interest in reinsurance is accounted for by:

• the quest for diversification through greater geographic and business-based pooling,
• access to an international network as well as to capital markets,
• the establishment of higher margins than those provided by traditional insurance thanks to a large volume of premiums without recourse to important infrastructures,
• the provision of technical expertise to absorb peak risks and major shocks.

Reinsurers’ever growing interest in direct markets

Unlike some insurers who have gone back and forth several times, coping with cycles and strategies, reinsurers seem more determined to embark on direct markets.

Thus, the world's leading reinsurers [6] have acquired, since the beginning of the 1990s, entities dedicated to insurance. The main objective of these entities is to cover industrial and commercial risks and to remedy the increase in retentions in the primary market.

These reinsurers include:

• Munich Re [7], which acquired several stakes in German insurance companies. The latter merged in 1997 and created Ergo, which quickly became the second largest insurer in the country after Allianz. In 2001, Ergo became a wholly owned subsidiary of Munich Re, operating in life and non-life insurance. In 2020, 42% of the German group's results were achieved by the direct entity.
• Swiss Re [8], which has developed an in-house entity to cover post-war industrial risks. In the early 1990s, the Swiss reinsurer created a department dedicated to direct business. To get even closer to policyholders, Swiss Re founded a separate entity in 2011 in charge of industrial and commercial risks, Swiss Re Corporate Solutions.
• Scor [9] also keen on being closer to the risk and to the client. Thanks to the complementary nature of its insurance platform expertise (aviation, marine transport, engineering, property damage, etc.) and its reinsurance platform,
  Scor is tapping into its technical expertise to better assimilate risk.
  Specialized insurance, therefore, accounts for 25% of Scor Global P&C's premium turnover (property and liability class of business).

Direct insurance, therefore, enables reinsurers to:

• diversify their portfolio,
• better cope with cycles,
• cope with the decline in cessions,
• get closer to the insured and directly cover some huge corporate risks.