AM Re Shevawn Barder: hardening rates and opportunity

Rates in the insurance and reinsurance markets are continuing to improve. Rate increases are a reaction to bad 2017 and 2018 market results. They are welcomed by the market and are contributing to a better trading environment in both the primary and reinsurance space.

That is the view of Shevawn Barder, the chief executive of AM Re, a boutique reinsurance provider that focuses on specialty quota share reinsurance in the primary US market. AM Re trades on behalf of a pool of Asian reinsurance security. AM Re brings Asian security into the primary market on a quota share platform that matches the Asian securities’ appetite for risk diversification with high quality primary US domestic business. Barder says there are a number of positive implications of this change in the market.

“The US primary insurance specialty market continues to improve,” she says. “Rates are increasing across the various sectors, mainly by single-digit percentage points.

“Following the 2017 hurricane losses, this is the second year of rate rises, fuelled further by marginal 2018 and similar if not worse H1 2019 results. We are experiencing an improved trading environment in the specialty reinsurance classes.

“It is important to be selective in terms of the classes of business underwritten, but with careful selection, monitoring and management, there are profitable niche classes of business to choose from.

“This much needed improvement is benefiting both the direct primary market and the quota share reinsurance market. As rates are increasing, opportunities arise for quota share reinsurers to review and reduce cede commissions to align them to achieve profitable results.

“We are also tailoring terms and conditions to further support the rate trend, for example multi-year quota share deals are no longer possible.

“Profit commission incentives, in the form of additional cede commission for improved final gross loss ratio results, suit both insurer’s and reinsurer’s appetite for profit. The strong US economy should continue to support this market correction for the balance of the year, as the high demand for insurance continues.”

Barder stresses that the programme market is well organised and disciplined—only the professionally well managed companies survive and thrive. The programme market is a small niche and there is limited capacity so there is no room to support lagging participants. Managing general agents (MGAs) within the programme space are top quality companies that are expert in their discipline. They are a key component to the distribution network within the US primary market.

“It takes a high level of expertise to understand the programme market dynamic. We have been trading in that space for 20 years now and are recognised market experts,” says Barder.

“A number of MGAs have failed to retain their paper in 2019 and this has cleared out the weaker market participants. It has strengthened the underwriting environment. The closing down of small or unprofitable portfolios will continue as capacity continues to shrink.

“This change within the market forces marginal business to look elsewhere for capacity. It means that this business has to be repriced to get back into the US market. These are positive developments for the US primary market.”

AM Re operates in a small but lucrative niche. It is a reinsurance provider that specialises in specialty reinsurance to programme carriers. Barder describes the programme market and quota share reinsurance as “a vocation”.

“We have specifically focused on bringing quota share reinsurance into the US market as a high quality form of capacity. Quota share reinsurance uniquely fits the programme carrier model. It is an interdependent relationship that fits all parties to ensure their trading ability.

“It is essential to the primary MGA as well as the fronting carrier. In this way all the participants’ interests are uniquely aligned and focused on creating a profit,” she says.

AM Re partners with ceding companies and fronting carriers who support in-house portfolios or MGAs writing primary business in the US market. She explains that this approach has inherent benefits.

“By partnering with fronting companies and their supported MGAs, AM Re accesses grassroots business that is very low limit, non-nat cat exposed, and geographically well spread.

“Programme business tends to have low average values and is underwritten by local experts. Renewal retention rates are strong due to customer loyalty and quality service. We visit all our cedants and understand the primary market dynamic. This is an excellent space where relationships count.”

Barder stresses that AM Re’s team, which is made up of highly skilled former primary underwriters, places it in good stead to understand each portfolio and the specific monitoring process that goes with the quota share model.

“In this way, AM Re truly partners with the primary market, whether being the fronting carrier or the primary MGA writing the business,” she says.

“AM Re writes quota share reinsurance exclusively. The monitoring of our book is managed on either a monthly or a quarterly basis. This ensures that we are able to spot trends within the results and communicate our findings to our reinsurance partners.

“We manage and assist in setting underwriting guidelines, we monitor the primary company on behalf of its reinsurance risk-carrying securities in respect of both frequency and severity stress tests. We meet with our cedants and the fronting companies regularly to communicate the results and review progress.

“The quota share model allows AM Re to have a hands-on ability to assess rates, underlying trends, market conditions and the daily challenges faced by our clients,” Barder says.

“The detailed analysis suits AM Re’s model and appetite for information and comprehension; such a detail-orientated approach is not always executed or preferred by the big international reinsurers. It is time-consuming and requires a specific skillset. We have a database that has been compiled over our 20 years of trading that allows us to benchmark market rates, results and nat cat activity.

“It requires a primary understanding of the unique characteristics of the local market. That is why AM Re is so well suited to this class of business. We at AM Re are experts in specialty quota share reinsurance market having been in the space for 20 years,” Barder concludes.

Shevawn Barder is the chief executive of AM Re. She can be contacted at:  shevawn@amresynd.com