Reinsurance is a practice within the insurance industry where an insurance company referred to as the ceding company transfers a portion of its risk portfolio to another insurance company referred to as the reinsurer. The primary purpose of this practice is to spread risk so that no single company bears the full burden of a potentially large payout due to claims. This arrangement allows the primary insurer to take on more risk or stabilize their financial status by having a reinsurer assume some of the potential obligations and pay for sustained losses, allowing them to manage their risk exposure, stabilize underwriting results, and enhance their underwriting capacity.

Reinsurance is an essential component of the insurance industry, having existed for over 150 years. Its origins lie in Cologne Re, which signed its first reinsurance treaties in 1852 after the Great Fire of Hamburg.

Over time, other major players such as Swiss Re and Munich Re emerged, consolidating their position as leading global reinsurers.  Today, the reinsurance market continues to grow, driven by increased awareness of insurance products, digitalization, and alternative sources of capital using insurance-linked securities.

Market growth is generally adequate across all categories, with increasing consistency in contract wording and structural variations.  The global reinsurance market is expected to grow significantly by 2029, with gross written premiums expected to reach a high of about $592.87 billion from 444.36 billion USD by the end of this year.

Despite improvements, some geographies and customer segments still face challenges in ensuring market-balanced pricing and structures, especially in the property and casualty insurance sector.

Most reinsurers reported positive underwriting results, reflecting the benefits of pricing and coverage developments in recent years.  The average net combined ratio of the world's 15 largest reinsurers, which underwrite a wide range of categories, is 90.4%.

Reinsurers are adopting digital technologies, including blockchain, to improve efficiency, transparency, and security by integrating processes with blockchain reducing costs and streamlining customer data management.

Reinsurers are leveraging AI, machine learning, blockchain, and the Internet of Things (IoT) to create innovative short-term insurance products these advancements meet consumer needs while optimizing operational efficiency.

Emerging markets are contributing significantly to industry growth with multinational reinsurers facing competition from local companies that are rapidly developing expertise to compete with global companies.

Reinsurance faces new types of risks, such as cybersecurity, autonomous cars, the Internet of Things, robotics and artificial intelligence and reinsurers play an important role in supporting the development of these new products. The cyber security sector in reinsurance is growing rapidly and reinsurers are capitalizing on this opportunity as prices of cybersecurity-related products have decreased, leading to increased capacity.

The macroeconomic landscape is just one of many factors that will shape the reinsurance industry from now on while Societal inflation, climate change, the transition to net zero, and war are harder to quantify and predict, and reinsurance plays an important role in compensating customers in the event of damage. There is also an opportunity for the industry to move beyond traditional risk transfer and into the areas of mitigation and adaptation by providing risk mitigation incentives to policyholders.

Digital ecosystems are essential to the future of reinsurance growth and profitability, as they can assess the market using the unique skills and capabilities they can leverage. Some solutions are better left to local primary insurance companies that have the experience and infrastructure in place to provide practical solutions rather than reinsurers while reinsurers can combine speed, innovation, and in-depth risk knowledge to deliver a winning combination for effective risk solutions and excellence in insurance.

Phumulani Mazvabo | Treaty & Facultative Broker at Fachs Reinsurance Brokers