Needs of small and large cedants diverge
While the world’s largest, global, cedants are retaining more risk on their own balance sheets and buying less reinsurance, the reverse dynamic is true when it comes to smaller, regional players, believes Andrew Marcell, chief executive of the US operations of Guy Carpenter.
“When you look at global insurers, the strength of their balance sheets is driving them to retain more risk. Additionally, they feel they understand certain lines well enough to do this and, when they are buying, they are doing things on a global basis,” he said.
“But for smaller players, the opposite is true. An increasing divergence is occurring in that sense between the needs of the largest buyers compared with smaller cedants. They are using their brokers and other service providers a lot more for a much broader range of services.”
He also anticipates that they could be driven to buy more coverage. The changes rating agency AM Best is making to its approach, moving to more of a stochastic-based model, combined with the Own Risk and Solvency Assessment (ORSA) regulations, could force smaller players to re-examine their retentions and internal risk management, he said.
“This could prompt some players to buy more coverage,” he explained. “Those clients are already using a wider range of intermediary services and we expect this to grow as they respond to these changes.”
Marcell also notes that while reinsurers face a challenging pricing environment and increasing competition for a shrinking pool of business on some mainstream lines such as property-catastrophe business, demand is increasing in other areas, opening up opportunities for the more innovative brokers and reinsurers.
“In the US, many casualty lines are growing. There is increasing demand for cyber and terrorism coverage while opportunities are also emerging in areas including healthcare and life reinsurance,” he said.
The opportunities emerging in US healthcare are being driven by the Affordable Care Act, also known as Obamacare. This legislation has created great uncertainty for many providers of healthcare services, something that some brokers and reinsurers are increasingly creating products around. “We can help create more certainty around the risks,” he said.
He continued: “It is a tough market but the most innovative players are finding the opportunities for growth.”
“New risks are emerging and some cedants need help in new ways. The most innovative, nimble and proactive players can still thrive.”
