Reinsurers offer cedants unusual deals
Some reinsurers are offering an increasingly varied array of innovative products and structures to cedants as they attempt to differentiate themselves in a crowded and competitive marketplace.
Speaking as a buyer of reinsurance, Matt Fairfield, the founder and chief executive of ANV Holdings, which operates three syndicates at Lloyd’s, told Monte Carlo Today that he has taken advantage of “some very interesting opportunities” offered by reinsurers in recent years.
Since its formation, Fairfield said ANV has used reinsurance as an essential means of risk transfer and as a form of capital. He said the firm has built its balance sheet prudently during that time with reinsurance as a cornerstone. He has also been offered some highly innovative structures.
“It has been a difficult time for the reinsurance market. Their clients are also tending to retain more risk so they are coming up with new solutions,” he said. “Some of these strategies have not been designed for us – we are too small to warrant that. But we then get the benefit down the line when these same products are offered to us.”
One of these, he notes, is what he describes as a ‘sideways cover’. “This is structured like a traditional programme but has certain other triggers that will give you extra protection against your net,” he said. “For the buyer, it is about establishing the risk-reward balance – ceding profits away versus protecting your balance sheet.”
He also describes another unusual innovation being offered by around a dozen reinsurers whereby they essentially buy the reserves and liabilities associated with a specific year of business from an insurer.
The insurer receives a one-off payment and also frees up capital while the reinsurer hopes the underwriting profit on that business will be better than anything written in the current market.
“They are doing it on the basis that rates and profitability then were better than they are now. So they see it as a good use of capital,” said Fairfield. “It is not run-off because you are still writing that line and the client-relationship does not change in terms of claims. It is somewhat like a commutation but with more variables attached.”
He said that a cedant may accept such a deal either because it wants a one-off boost to its profitability or because it believes it can make better use of that capital targeting opportunities in the market now.
“They say that necessity is the engine of ingenuity and the reinsurance industry is certainly looking far and wide for innovative ways to use its capital right now,” Fairfield said.
