Reinsurance: now more useful and flexible
Reinsurance remains a very attractive option for insurers in the current economic environment, especially because it is now so flexible, David Flandro, global head of JLT Re’s analytics division, told Monte Carlo Today.
“If you’re looking at capital structure and your reserves and thinking they look a little less redundant than they used to, reinsurance is a spectacularly economic tool right now,” explained Flandro.
“We just have to get that message out—there’s so much you can do with reinsurance that couldn’t be done three years ago. Now, adverse development covers can free up capital while keeping rating agencies happy.”
He explained that reinsurance is a more competitive form of capital than equity and debt, in some cases.
In Enough in Reserve?, a report released on September 12, JLT Re examined the top 30 re/insurance companies and compared calendar year reserve development to accident year loss trends.
“There’s a serial correlation between these trends, with the accident year loss trends tending to get worse before the calendar year. The last time we saw such a big disparity was in the late 1990s, just before the liability crisis,” said Flandro.
He added: “The industry is now seeing a gradual disparity starting to open up, particularly for accident years 11 and 12. In those years, insurance companies raised prices while they were releasing.”
The general feeling is that these redundancies over the past seven or eight years are now not as redundant.
It would take a combination of UK CPI inflation, claims inflation in the US, less than redundant reserving and a big cat event, or several, to turn the market, explained Flandro. But he is confident the broker is prepared for any changes that occur in the market.
“In analytics, our key focus is developing truly differentiated tools. Right now, there is a homogeneity of offering in the world of reinsurance broking, which just means that everybody is offering similar products with the same vendor data underlying it and the same interfaces that are 10 or 15 years old,” explained Flandro.
The reinsurer is focused on offering bespoke solutions to its clients, with 21st century software interfaces and unique algorithms. Flandro said he hoped to make some announcements surrounding this area later this year.
