Buyers can be split into two camps

Two distinct types of buyer are emerging in the market’s ultra-competitive environment: those who appreciate the long-term nature of reinsurance and buy on the basis of reliability and ability to pay claims, and those who buy purely on the basis of price, securing coverage as cheaply as possible.

That is the belief of Charles Goldie, deputy CEO, global non-life and head of specialty lines at PartnerRe, who told Monte Carlo Today that despite reinsurance being such a technical and data-driven industry in some ways, he is constantly amazed by the extent to which the human psyche can play a part, especially during times of an abundance of cheap capacity.

“There are some buyers, who I might describe as passing through the industry, who have a very aggressive approach. In my more cynical moments, the best way I could describe it would be that they are behaving as if on a TV game show filling their shopping trolleys with products as quickly as they can.

“The industry is due a lot of consolidation and some fundamental change. That is why it is better to play a long-term game; the buyers who view it on that basis have it right.”

Goldie said this characterisation of the different types of buyers and their strategies is not dependent on the type or size of the organisation they work for. He said that while strategic decisions around what to buy are usually made at board level, the detail of which carriers are used is still made by individual reinsurance buyers.

“The execution is still done at a quite personal level,” Goldie said. “It is interesting how that varies person by person, with different buyers adopting very different approaches.”

In his own field of specialty lines, he said, buyers are generally more consistent, largely because they want the certainty that their reinsurance partner has the expertise and intellectual capital to adequately understand what are sometimes niche risks.

“If you have a specialty business, you want to be working with someone who understands those lines,” he said. “I also find that cedants are not that interested in where the capital is coming from as long as they are getting quality security, an understanding of their business, prompt claims payment and a desire to trade forward when opportunities arise.”

The sector is also not immune from the other wider trend: that of cedants retaining more risk on their own balance sheets. This is being driven by three things: the perception of better internal models and sophistication within insurers; good historical results; and a desire to demonstrate growth against a backdrop of tough market conditions in primary lines.

“Cutting your reinsurance spend can boost your profits,” he said. But he also warned against cedants setting too much store by risk models. “The history of the industry shows two common great mistakes: companies retaining more but retaining the wrong risks; and companies so hungry for growth they lose their discipline and under-price business.”