Reinsurers must assume more volatility: buyer
Reinsurers should be assuming higher levels of volatility from cedants than they have historically, helping smooth their clients’ long-term earnings in the process, believes Anna-Kitty Ekstam, head of reinsurance at Scandinavian insurer If….
Ekstam was picking up on comments made by Amer Ahmed, chief executive officer of Allianz Re, at the opening reinsurance symposium in Baden-Baden. Ahmed described how Allianz had cut its reinsurance spend by almost 60 percent in the past seven years and was increasingly ceding more volatile business to its reinsurance partners—something he accepted should also be more profitable for them.
Ekstam said If… agrees with this buying philosophy. While the insurer’s reinsurance programme has been very stable since the company was formed in 2002, she said the company has been increasing, and will continue to increase, the volatility of what it cedes to its partners.
“I thought Amer’s assessment of what reinsurance should be was very succinct and we agree with that philosophy,” she said. “The idea that what he called the ‘units of premium’ being ceded would contain more volatility matches what we have been doing in recent years.
“That is the role reinsurance should fulfil and our reinsurance partners need to find ways of managing that. The function of reinsurance should be to help us smooth our underwriting results.”
If…—one of the largest buyers of reinsurance in northern Europe—uses between 50 and 60 traditional reinsurers as part of a large panel managed by its broker Guy Carpenter. Ekstam said that the insurer values long-term relationships and prefers to work on this basis. But she is also pragmatic about the need to negotiate a better deal—especially in such a competitive soft market with so many other players keen to participate on the insurer’s programme.
“Everyone accepts it is a soft market. There have been no losses and we are here in Baden-Baden to try to get better deals,” she said. “We prefer to trade with long-term partners and we certainly like to stick with those that have supported us in the past around claims.
“On the other hand, we don’t want to be silly—we also want to achieve a good deal. But we communicate to our panel what we expect and what we want to achieve and, for the most part, they are very receptive to that.”
If… does not yet use any other form of risk transfer either in the form of full insurance-linked securities (ILS) or other forms of fully collateralised protection. Alex Teterukovsky, reinsurance manager with responsibility for catastrophe protection at If…, said that such risk transfer tools are on the radar of the insurer but as things stand, for ILS deals in particular, the gap between the terms and conditions available compared with traditional protection was too great.
“The ILS market is evolving and it is heading in the right direction. The gap is smaller than it was but it is still a little too big for us at this stage,” Teterukovsky said.
He added, however, that the insurer was considering using other types of collateralised reinsurance and it was possible such risk transfer solutions could become part of its programme more quickly—potentially in time for the next January renewals.
“That is an option which is on the table,” he said. “We will work with our broker to assess all such options. Maintaining long-term relationships is very much our primary goal but we must also be pragmatic and consider all options in such a competitive market, with so many options available to us.”
