Regional reinsurers remain undiminished in their importance
Despite apparent trends towards bigger global reinsurers benefiting from economies of scale, specialist regional reinsurers with strong local knowledge and expertise remain important, as Fuad Kuliyev, CEO of Az Re explains to Baden-Baden Today.
In a period of consolidation, why are regional reinsurers still important?
Local knowledge and results, of course. Some of these companies date back to the protectionism of the 1970s and even before that, when companies and governments were safeguarding foreign reserves and so were state-owned or guided and benefited from compulsory and legal cession business.
Some of these have developed into fully fledged reinsurers while others remain relatively small and having lost the benefit of compulsory cessions have not made the jump to become international players.
This nevertheless has led to better than average results in order to survive, but correspondingly higher cost ratios. At Az Re we have never actually had any compulsory cessions but do have a market share of more than 40 percent and pretty good results.
What makes the relationship of the regional reinsurer with cedants different?
Language and regional knowledge are the specific advantages; we also can and do sell reinsurance which raises the eyebrows of some older and more traditional reinsurers. Knowing the people and habits of each region gives an enormous advantage which leads to better leverage to obtain mainstream business in return for value-added services.
What are the biggest challenges facing regional reinsurers?
Scale, which leads to a temptation to accept more foreign business—although why would any reinsurer wish to involve itself in underpriced international business simply to grow—and destroy the carefully built up profits from domestic business, so it’s a question of maintaining a higher expense ratio but a lower loss ratio than the multinationals.
What are the biggest opportunities?
For all regional reinsurers the biggest opportunities lie in legal and regulatory changes where they have advance warning and time to develop their products before the rest of the market. Also, startup insurers are more easily understood locally and can gain access to specific lines of business with the help of the local reinsurer.
What would be your solution to the problems faced by regional reinsurers?
It would be excellent to see some kind of sharing of knowledge in all matters common to regional reinsurers, from actuarial and pricing continuing to modelling, IT and managerial. From there it should be a simple process to develop or exchange capitals, perhaps aiming towards a form of mutual reinsurer which would have the benefit of a portfolio of the best business since locally written, and which due to its diversity would benefit from A-grade ratings to become a larger international enterprise.
Is this scenario likely to happen?
At the moment it is unlikely because there are too many vested interests and because there would be a need to reduce internal costs at the expense of longstanding and knowledgeable staffs. However, if the world begins to get closer together, such a project might just work. An exciting thought!
Fuad Kuliyev is the chief executive officer of Az Re. He can be contacted at: s.mirzoyeva@azre.az
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