11 September 2016 News

Biggest players could lose market share

Large reinsurers that have aggressively expanded into primary insurance in recent years could start to face a backlash from their clients, Jed Rhoads, the president and chief underwriting officer for Markel’s global reinsurance division, has warned.

“We are starting to hear grumblings from cedants that reinsurers, especially those with large shares of reinsurance placements, are not welcome to compete directly with them on the primary side,” he said.

Rhoads believes that there are winds of change in the industry, which may see some of the biggest players lose market share if they are perceived as ‘changing their stripes’ and becoming a threat to original insurance business.

“While many reinsurers, including Markel Global Re, have insurance operations that compete with clients, it’s an order of magnitude issue,” he said. “It’s one thing to have small shares of a programme, and quite another to control or lead with big slugs of placements.”

He also believes there is a re-emergence of counterparty credit concerns due to protracted soft market conditions. “The bigger reinsurers are often the worst culprits for poor pricing discipline. After all, by definition they are the ones driving terms and the market.

“Some reinsurers are perceived as too big to fail, but we’ve heard that before in the banking industry,” he said. He questioned whether a series of events in this low interest rate environment, including concerns about foreign exchange, could lead to change.

“This market feels similar to the early 1980s and late 1990s when we could not foresee what would actually change the market cycle before it did, and when the lack of reinsurance losses ultimately led to a lack of underwriting discipline.”

Cedants are also starting to show interest in mutual trading relationships with reinsurers, but not going ‘toe to toe’ with them on their core primary business, Rhoads added.

“Cedants are beginning to question if they can extract more than just good security and capacity from their reinsurers. What else can they do to help cedants grow their business?

“The notion of a more circular food chain with the reinsurer providing more diversification or gaining strategic advantage, is becoming increasingly attractive in this market, but they certainly don’t wish to lose income to their reinsurers,” Rhoads concluded.

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