Four out of five reinsurance executives believe soft market conditions are presenting a significant challenge to the industry, according to a worldwide industry survey.

Xuber’s Global Reinsurance Survey revealed that 81 per cent of executives polled listed soft market conditions among their top five concerns. This was followed by competition from third-party capital (66 per cent), and mergers and acquisitions (M&A) (66 per cent).

An abundance of capital pouring into the reinsurance market in the form of insurance-linked securities and hedge fund-backed start-ups has served to suppress rates, a trend exacerbated by a relatively quiet period for catastrophe incidence.

“The real threat is publicly-listed insurers and reinsurers who have to maintain scale to appease their shareholders,” one respondent told the survey. “Ergo, they’re writing everything.

“What happens to all those classes of business that (for years) have been propped up by property-catastrophe? If the margin in cat continues to be eroded how can businesses afford to maintain these marginal lines?”

Another respondent said: “The soft market is the issue underlying the different challenges reinsurers will continue to face. It can lead to a lack of broker and underwriting discipline which may translate into disputes.”

One London-based professional told the survey: “Slack underwriting discipline in a soft market is the most serious avoidable issue for any reinsurer and the one most likely to imperil the company.”

On the wave of consolidation sweeping reinsurance, the survey found some executives believing it would throw up opportunities for smaller niche specialists.

“The effect of mergers and acquisitions has the great potential of creating niche players in the field — those who are too small to compete with the big players but who bring unique expertise and talent to the table,” said one executive.

The survey by Xuber, Xchanging’s insurance software business, also polled opinion on the top opportunities.

Number one was better use of analytics and modelling (71 per cent), while related number five was using big data effectively (46 per cent).

Second was partnering with third-party capital (69 per cent) and third was M&A (63 per cent).

“There is a lot of room for greater efficiency in the industry,” one executive said. “Identification of better risk/reward, reduction of manual process, use of metrics to gauge performance, and use of Big Data. Technology is severely underutilised in this regard.”

Another respondent said: ““Diversifying to me means using Big Data, better analytics, etc. to develop new products, not just adding products or lines of business that others are already writing.”

Chris Baker, Xuber executive director, said: “These results corroborate the findings released in the Bermuda survey we conducted last year where soft market conditions were cited as the key industry challenge.

“However, this survey unearthed a range of new business opportunities that can provide the competitive edge needed to survive and prosper in the current environment. With margins tight and prices falling, reinsurers are under great pressure to ensure their processes are as efficient as possible.

“Surviving and prospering in the soft market will require companies to operate at optimal efficiency, and their IT systems will be central to this. Only the savviest of reinsurers who recognise that technology can be the catalyst for change will emerge unscathed.”

The survey, which was conducted via e-mail and phone during February and March 2015, polled senior professionals including insurers, reinsurers, brokers, industry organisations, lawyers, ILS investment managers, analytics firms and modellers, across the UK, US, Bermuda, Canada, Channel Islands, Cayman Islands, Germany and Switzerland.

To read the survey, visit the website www.xuber.com.