Multi-year contracts are a bad idea, warns reinsurance buyer

10-03-2015

In a softening market, it is detrimental for both sides to take out a multi-year contract, according a senior reinsurance buyer. 

Abdul Zahra Abdullah Ali, chief executive officer of National General Insurance, warned against multi-year contracts at a panel event during MultaQa Qatar 2014. 

“Multi-year contracts were a common practice in the 1990s because the market was so soft. The reinsurers didn’t want to have a further reduction in prices and wanted to secure their market share. Insurers felt it was a good opportunity; with a fluctuating portfolio and bad results, it was a good idea,” he said. 

“This may have been beneficial for both, but in a softening market it is detrimental.”

Speaking on the same panel, Lazhar Charfeddine, chief reinsurance officer of ADNIC, outlined what he believes are the drivers of reinsurance buying. 

He explained that the first driver should be the company’s mission statement, with the second driver being how much the company is willing to retain before discussing reinsurance options. 

“The third driver is the outcome of the models,” he said. “Not all companies will have the facilities but it’s very important to have these models. It informs you of the best selection to be adopted. It’s also important to make sure we don’t just think about the short term, we must think about the short, medium and long term.”

He added that three other key factors were market dynamics, which have a direct impact on purchasing decisions, a budget and the quality of service and track records of the reinsurer. 

Reinsurance, Abdul Zahra Abdullah Ali, National General Insurance, Insurance, Lazhar Charfeddine, ADNIC, MENA

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