Most buyers now negotiate bespoke contracts

The majority of reinsurance buyers demanded bespoke contracts in the recent renewals as, leveraging the fierce competition in the market, many drove a hard bargain with reinsurers negotiating better terms and conditions in contracts.

Nick Frankland, chief executive of EMEA at Guy Carpenter, said that almost all deals he saw completed used bespoke contracts. But he believes such a dynamic will suit more innovative reinsurers able to offer a high quality service and new solutions.

“The amendment of terms and conditions played a large part in this year’s renewals with 99 percent of cases now requiring a bespoke contract,” said Frankland, speaking at a Guy Carpenter press conference in London. “There have also been lots of changes to hours’ clauses; broadening components such as freeze, rather than entire areas such as flood.”

But against a backdrop of solid profits and high levels of capacity in the industry, Franklin made the point that many reinsurers can afford to be flexible and cut rates. “All business lines are still profitable, so reinsurers are giving back part of that profit,” he said.

With innovation high on the agenda, both Frankland and David Flandro, head of business intelligence, New York, spoke of the market’s reaction to the new capital and how this would affect buying trends.

“This renewal is much larger and much more diverse than usual. The largest outcome has been the reaction from the traditional market,” said Flandro.

Frankland added: “The traditional market has reverted to relationship management. Skilled traditional reinsurers have the expertise and capacity to defend their position. However, it will be interesting to see where the traditional reinsurers go next. Those in for the long term will find ways to make underwriting better in order to develop smaller areas.

“However, the question is whether reinsurers are providing the correct service to insurers. We are seeing more product retention, and in a market that is so cheap, why would you retain this on your balance sheet? We need to find a way to encourage insurers to start re-buying.”

Flandro agreed: “With the cost of debt and equity increasing, and the cost of reinsurance decreasing, why would insurers retain this?”