Cedants are centralising reinsurance buying
The current reinsurance market is characterised by a tendency for cedants to retain more risk and to centralise their reinsurance purchasing, condensing all their needs across various lines and territories into one reinsurance programme. That is the view of Jacopo D’Antonio, managing director—Europe for Aspen Re.
“There has also been an increase in competition due to a larger amount of capital being deployed for reinsurance business,” he added. “Meanwhile the capital markets are becoming more active in Europe, providing alternative products, particularly for catastrophe risk.”
Against this backdrop, D’Antonio believes that traditional reinsurance can still offer plenty of value to Aspen Re’s clients because it enables them to look at the overall relationship across various lines of business, and to have a view that spans different years.
“We are not looking at transactions in isolation; we have the advantage of several years’ relationship with the client,” he said.
Aspen Re has a foot in the capital markets camp, having created Aspen Capital Markets in 2013 to manage third party capital—but here, too, the relationship with the client remains central, with the provision of alternative reinsurance structures giving Aspen Re a further option to explore with its clients.
“Aspen Capital Markets is a way to provide different products to our client base,” he said. “If our client base wants a traditional product we can offer that, but at the same time we can offer them alternative products. This is something that is developing very fast and very successfully.”
In the current market, with clients increasingly focused on centralising their reinsurance purchasing, Aspen Re sees a lot of opportunity for cross-selling and is planning to build on that.
“We have clients that have one or two products with us who are very willing to expand their relationship in this way it because it creates a more balanced relationship,” he said.
He added that the low interest rate environment makes it more challenging to write long tail business because the reinsurer is forced to reach a lower combined ratio to achieve the requested return on equity.
The challenging market conditions may have led to consolidation within the industry, but D’Antonio is circumspect about the benefits of mergers and acquisitions.
“Traditionally mergers fail to create value for the shareholders so it is not enough to say consolidation is needed; it must be the right consolidation, with the right, thought-through post-integration strategy. Consolidation for the sake of it will destroy the value for shareholders.”
