Traditional reinsurers must be wary of diversifying to survive amid fierce competition, Willis Re President Paddy Jago warns.

“They could be entering into [business] areas they know little about and that will be a problem,” he told a Willis briefing. “It will exacerbate the issues they have.”

Mr Jago says reinsurers are turning to new markets as they strive to remain relevant in a period of considerable flux and “greater change than I have seen in my 35 years in the industry”.

The arrival of new capital has stiffened competition and softened rates, and Mr Jago believes it will lead to consolidation among reinsurers.

To remain relevant and survive, companies need a high degree of expertise, to be large and to have client relationships, he says.

“Without expertise you are asking for a fall.”

Mr Jago says buying patterns have changed, with CEOs and CFOs assessing the need for reinsurance as part of their groups’ capital programs, rather than leaving it to business units to determine the cover needed.

Insurers are also increasing retentions after a few benign loss years. “It is a very challenging time for reinsurers.”