Capital, volatility and change: Tim Ronda on the reinsurance market

Ahead of the Rendez-Vous de Septembre in Monte Carlo, Tim Ronda, CEO Howden Re, shares his perspective on the reinsurance market, the growing role of alternative capital and why traditional reinsurers will remain central to the industry.

Speaking recently on DUAL North America’s Insurance at 78 RPMs podcast, Tim reflected on the reinsurance market today and some of the forces shaping its future.

Asked to choose between a “stable” or “volatile” market, his answer was immediate: “Volatile.”

That volatility sits within a market that has changed significantly over the course of his career. Capital can move into reinsurance much more quickly, investors have more ways to participate and new forms of capital are increasingly sitting alongside traditional reinsurance balance sheets.

“The world has become a lot more flat. Investment capital can flow into our business far faster than it could have 30 years ago.

“I think it’s a function of being a more efficient market, and I think we’ve created structures that allow people to create investment vehicles that are self-liquidating. If I’m an investment manager and I’m looking for some uncorrelated return to add to my other assets, people discovered that insurance and reinsurance is a way to do that.

“That could be long-tail, that could be short-tail. There’s a variety of ways for people to introduce uncorrelated assets to their existing asset classes.”

For investors, there are now more ways to access insurance and reinsurance risk, from catastrophe bonds to collateralised property and casualty structures.

“There are so many more avenues that are easy to understand and access. Frankly, Lloyd’s has done a good job with London Bridge too.

“The reality of the situation is that I think we have created mechanisms to attract and make easier the flow of capital into our business. And I think that’s happening at the same time that investors are getting more sophisticated and looking for different types of return rather than just the same types of returns, and we’re benefiting from that.”

Alternative and traditional capital

Tim believes the growth of alternative capital will create opportunities for the industry to develop new products and address different forms of volatility, while complementing rather than replacing traditional insurance and reinsurance capital.

“That’s going to allow us to innovate new product, think about different forms of volatility, and I don’t ever see the traditional insurer or the traditional reinsurer going away.

“They’re just going to be supplemented by this alternative capital that’s going to allow us to do even bigger and better things in insurance and reinsurance.”

He also expects traditional reinsurers to remain an important part of the market, particularly because of the underwriting expertise they provide.

“I think they’re going to remain important forever, and I think that more of them will get formed. Who wouldn’t want Munich or Swiss Re validating a decision that you’re making if you’re an investment manager?

“I’m a big believer that underwriting talent is going to exist at those vehicles. It’ll exist at new vehicles too, but I think it’s always going to exist at those traditional vehicles.”

More choice ahead?

After a period of significant consolidation, Tim believes there may come a point when demand for greater choice creates the conditions for new companies to emerge.

“I think that there’ll come a time when there’s been so much consolidation that people want more choice again, and entrepreneurs will find traditional balance sheet capital rather than self-liquidating or different forms of capital that are kind of more common today, and new companies will get formed.”

What triggers the next change is much harder to call.

“Who could have predicted the class of 2001 or the class of 2005 or some of those other things? The great thing about our business is that anyone that thinks they could predict the future is in fact 100 percent wrong.

“Something could be brewing right now that is going to cause some sort of dislocation in our business, and six new companies might get formed as a result. We’ll see.”

It is a market Tim expects to continue changing: more capital, more ways for that capital to participate and, potentially, new companies emerging as clients and investors look for greater choice. But traditional reinsurers and the underwriting expertise they bring will remain at its core.

Hear more from Tim on the reinsurance market, the industry and his career in his conversation with Insurance at 78 RPMs.

Listen here