13 September 2016 Alternative Risk Transfer

No more cuts to reinsurers: UnipolSai puts relationships first

The buyer for UnipolSai Assicurazioni, one of Italy’s largest insurers, has said he will not be pressing reinsurers for the lowest possible conditions in this renewals as he prefers to establish long-term strategic partnerships with a much smaller panel of reinsurers.

Marco Sordoni, head of reinsurance purchasing at UnipolSai, is responsible for buying €1.2 billion ($1.3 billion) of coverage. He has restructured the company’s reinsurance programme in the past three years, cutting its partners to around 16 compared with more than 40 previously.

“UnipolSai has drastically reviewed this structure during the last triennial. Except very specific lines of business such as bond, life or marine, our reinsurance is exclusively non-proportional,” Sordoni said.

The global nature of reinsurers and long-term business relationships were two key factors when determining which reinsurers to work with.

The process accelerated last year when, in collaboration with Willis Re, the insurer launched Multipol, a multiline aggregate excess-of-loss programme.

“The scope was increasing our retention level but keeping ceding risk more volatile to our reinsurers. In other words, it also means more profitable business for our reinsurers, but it is less costly to us because of the increased retention,” he said.

Sordoni stresses that the reinsurers he now works with are long-term partners and that pricing is a two-way discussion.

“Bearing in mind we are seeking a stable long-term relationship, we are not pressing for the lowest possible conditions available on the market,” he said.

“As a matter of fact, our leaders on the programme haven’t changed in the last three years. They are all recognised top reinsurers: Munich Re, Hannover Re, RGA Re and Swiss Re.”

This philosophy of not pushing for deep rate cuts works both ways.

“We noticed that when the conditions are ‘hardening’ ours are growing less than the market average. It is a question of strategic partnership,” he said.

“Taking into consideration the fact that every year I have been changing the structure (first non-proportional, second life and bond, and then Multipol) for the last three years, I’m more than pleased to announce that there will be no further changes in UnipolSai this year,” he said.

UnipolSai is a user of insurance-linked securities (ILS) and has been responsible for innovation on this front in recent years.

The company was the sponsor of Azzurro Re I, the first Italian earthquake catastrophe bond in the market’s history, bringing a new diversifying peril to the ILS investment community.

Sordoni said the bond was also fully aligned to the insurer’s traditional reinsurance programme, creating an optimal reinsurance programme by combining the advantages of the traditional reinsurance market and the ILS market.

The Azzurro Re I deal provided the insurer with €200 million ($225 million) of protection. Sordoni said he will probably use the cat bond markets in the future, but he believes that it should not represent more than 25 percent of UnipolSai’s total cat capacity.

He added that if penetration levels in Italy were to increase it might reconsider this.

“If the need is heavily increasing than we should reconsider such calculation. The current terrible situation in Italy after the recent earthquake is supporting us in our consideration that insurance should be a key solution for such issues,” he said.

“Of course a fiscal contribution, allowing the insured to detract from its taxable base, could be a kind of incentive able to generalise and increase the insurance penetration in the retail market, which is still heavily non-insured in Italy.

“Many examples in the EU show that full compulsory insurance systems do reach lower penetration levels than fiscally incentivised ones.”

And he believes that the ILS markets will continue to grow.

“It looks clear that the ILS market has a strong appetite and seems ready to offer serious capacity on the cat market. The question is the price. Until now, traditional reinsurance is still much more competitive and working layers are still an exception for ILS, even if the sidecar trend is moving to another direction,” Sordoni concluded.

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