Large US cedants shrink reinsurance panels but grow ceding rates
Many industry participants have commented and speculated that reinsurance panels have shrunk over the past ten years. This is only true for the largest cedants, which have at the same time grown their ceding rates, according to a study titled “Buyer Trends in Property‐Casualty Reinsurance,” which analysed the US market.
The study which compares the years 2006 and 2015 shows that a majority of the largest cedants did decrease the size of their reinsurer panels. Among the top reasons were industry consolidation, a flight to quality, the expanding of capacity and services of larger reinsurers, the growth of alternative capital, a continued soft market, and a desire for more efficiency.
However, for other cedants, below the top 20, panels tended to increase in size. These cedants did not want a higher concentration of credit risk, had less leverage with reinsurers, and often needed specialty line partners. Other drivers might have been business mix changes or acquisitions.
Nevertheless, ceding rates (ceded to gross premiums) overall increased slightly over the ten-year period, from 11.7 percent in 2006 to 12.6 percent in 2015, among cedants included in the study.
In 2015, the US industry ceded $81 billion to nonaffiliates. Ceding rates among the top ten cedants are much higher than the industry overall and increased the most, from 15 percent to nearly 20 percent. One of the reasons is that four of the top ten cedants are large participants in the federal crop program, where large volumes are ceded to the federal government reinsurer, according to the study.
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