A whirlwind of mergers is roiling the seas of reinsurance, but actuaries are well-positioned to help reinsurers manage the change, a panel of reinsurance executives said at the CAS Seminar on Reinsurance in Philadelphia.

“It is an exciting time to be an actuary,” said Ed Noonan, chairman and CEO at Validus Holdings Ltd., at the CAS seminar. Many changes in insurance and reinsurance today involve smarter use of data. Actuaries are famously comfortable working with data, and their training gives them deep understanding of insurance.

The reinsurance market has seen several high-profile mergers announced in the past year, including XL Group and Catlin Group, RenaissanceRe and Platinum Underwriters, PartnerRe and Axis Capital, and Endurance Specialty and Montpelier Re.

The mergers were spurred by a new set of investors, with hedge funds and pensions creating and supporting reinsurers to an unprecedented degree. In the past few years, this breed of investors has poured tens of billions of dollars into reinsurance, mainly underwriting catastrophe risks.

Panelists said that the new investors were driven, in part, by low returns on their old mainstay investments — bonds — and in part by the fact that catastrophes aren’t correlated with bond risks, which helps keep total risk in their portfolio low. New investors settle for, say, a seven percent return because it’s higher than what they can get in the bond market but still considerably lower than the double-digit return that reinsurers typically required.

The investment model — using an insurance operation to fund other investments and acquisitions — harkens to the multi-decade success of Berkshire Hathaway.

All of the new capital drove down reinsurance rates and, combined with low interest rates, has depressed returns on capital. Meanwhile, said Carole Ferrero, a Fellow of the CAS and president and global chief underwriter for Gen Re, insurance companies are retaining more of the risk they have traditionally sent to reinsurers. Reinsurance company mergers, however, can result in larger entities that are more capable of diversifying, growing internationally or expanding into new lines of business.

The mergers are one signal that the new investors aren’t going away, at least not soon. John Berger, CEO at Third Point Reinsurance Ltd., noted that hedge fund managers are attracted to the permanent capital base a reinsurer provides.

After the 2008 financial meltdown, Berger explained, hedge funds were hit with heavy withdrawals, but operating a reinsurance company provides permanent capital with which to invest and underwrite against.

Noonan added that the investment model — using an insurance operation to fund other investments and acquisitions — harkens to the multi-decade success of Berkshire Hathaway. Both Noonan and Berger operate firms partnered with alternative capital providers.

The new investors have also been increasing their reinsurance presence during a notably benign period. The past decade has been relatively quiet for catastrophes, meaning results have been good. Panelists suggested that things have the capacity to change if catastrophes start to throw results for a loop.

To succeed during these changes, Berger said, actuaries have to get a good fundamental grasp of the business and other key reinsurance positions: underwriting, investment and executive. “Go out of your way to develop that awareness,” he advised.

Actuaries continue to play critical roles at insurance companies, added Noonan.

“You’re not going to give up your seat at the table as the key risk manager and analytical partner,” he stated. “Insurance companies turn to their actuaries to validate that work.”