Reinsurers must let cedants ‘grow up’

Reinsurers should be happy for clients that are financially strong enough to retain more risk on their own balance sheets, said Charles Goldie, deputy chief executive officer of global non-life and head of specialty lines at PartnerRe.

“It’s clear that clients are retaining more. Sometimes reinsurers become upset, but you should be happy. It’s a bit like being a parent and providing support,” said Goldie. “It’s someone you have worked with for years but now they need you in a different way. You can cry about it, but you can’t stop them from growing up.”

He added that reinsurers should not believe this trend is a one-way street. “There is always an element in these parts of the cycle where clients retain more, discover they have more volatility than they were expecting and come back and look to buy more reinsurance down the road.”

Reinsurance buyers are actually having a tough time at the moment, he explained, because supply and demand are completely out of balance. Buyers can get a better deal on reinsurance than they have in the past, but it can be possible to get too good a deal.

“An experienced buyer has to find the balance between getting a good deal and also knowing that, in future, some reinsurers may no longer be around.”

That is why he believes it is important for cedants to work with partners who understand their businesses, regions and any specialty products while also solving problems that need solutions beyond just providing capital.

“There are always new forms of capital. The real challenge is being able to assess risk and get the right return on that capital. The skill of evaluating and understanding risk is much more valuable than just having a pile of money,” said Goldie.

Looking to the future, Goldie anticipates change and consolidation. “I would be very surprised if I was back in Baden-Baden in three or four years and there were as many reinsurers as there are today.”

Although there will be M&A in the classic sense, there will also be acquisitions where the competitor is closed down after the transaction. According to Goldie, the activity will begin with smaller companies over the next few years.