John Welch on How the Reinsurance Sector Has Changed in the Last Three Decades

“We’re doing a couple of use cases with artificial intelligence as probably most competitors are,” he said. “I think that’s a very interesting next phase on the technology front for everyone but certainly for us. We’re seeing analytical uses and operational efficiency uses already out of that. As I think about the business, we’re in going forward, the need to be as efficient as possible is so important.

“To enable us to manage through cycles, to be able to pull back and reduce your revenue when times are more difficult and the rates are not adequate requires you to have as efficient and mechanized as possible operations, so you don’t have the people fallout… For me, being able to rely as much on technology and retain the expertise you need, is important to working through the cycles that are inevitable for reinsurance.”

Consolidation in the reinsurance market

Consolidation is another element that Welch has seen change significantly since he started his career. During his involvement with the Reinsurance Association of America – the lobbying arm for the reinsurance industry – where he served as chair in 2019, he had a front-line view of a very long list of reinsurers dwindling to a much smaller cohort. As an example, he said, NAC Re, where he began his career, used to write long-tail casualty business with half a billion dollars of capital.

That would simply not be possible in today’s market, he said, where you need at least a billion dollars in the specific entity you’re going to trade with. The scale of companies has increased dramatically over the years while the requirements from the ceding companies around balancing sheet strength and rating strength have become more stringent.

All the major ceding companies now have reinsurance security committees evaluating all the companies they’re doing business with, he said, and they’re focused on trading with entities where they feel as secure as possible about the prospect of collecting from them should a claims event arise in 10, 20 or 30 years. Consolidation means fewer companies driving the market, and those that do exist now have a bigger market share, which is leading to more capability and the evolution of specialization.

“It’s funny, even with the market turning the way it has in the last, say 18 months, and the rankings going up, you don’t see a lot of new startups coming in and saying, ‘I want to be in reinsurance’,” he said. “You see a couple and they actually appear to be struggling a little bit to get their footing. The wave of companies which would have set up post-World Trade in 2002 or post-Katrina in 2006 would have been significant and they would have set up very quickly to take advantage of the hard market.

“But you don’t see that anymore in the industry and part of that is because the players in the industry have the capital to take on that risk. The rates are going up more because the feeling is they’re inadequate, not because there’s a lack of supply. So, there’s a lack of competitors out there and certainly, as Aspen, we’re competing with much bigger companies now… because the whole scale of competition has grown incredibly.”

What hasn’t changed in reinsurance?

What really hasn’t changed is the value placed on great market relationships, he said. That’s largely down to the power of trust in the reinsurance business because you have to trust that you’re dealing with the right person for the right job.

Welch also highlighted that this emphasis on trust goes right through the reinsurance ecosystem, from the cedents, to the reinsurers, to the brokers, to the end customer. It’s a dynamic which hasn’t really changed at all, he said, and the importance placed on human contact and knowing your customer and knowing your partner is, “as clear today as the day I started”.