Sophisticated buyers are aware of options

Buyers will again be looking to reduce costs in the year’s renewals—not necessarily simply by seeking straight price reductions but, more likely, by tweaking and restructuring their programmes, Darren Redhead, chief executive officer at Kinesis Capital Management, part of the Lancashire Group, believes.

Redhead, whose vehicle Kinesis offers structured, fully collateralised solutions to cedants, says that buyers have become increasingly sophisticated in recent years. This means they are more aware of the variety of risk transfer tools available to them and the different ways in which protection might be structured—to both save them money and provide better capital management.

“People are still looking to save money and one of the biggest costs is reinsurance,” he said.

“Buyers are much more sophisticated than they were three or four years ago. Most are using alternative structures as a complement to their traditional reinsurance programmes and that is changing the landscape. Especially when you consider the consolidation taking place among traditional players, there is quite a lot to negotiate at the moment.”

This greater sophistication is an advantage for Kinesis, Redhead said, as Kinesis now spends less time explaining how a fully collateralised structure works and more time focusing on the deal itself. Whereas a few years ago the nature of how a trust fund works within a collateralised structure would need explaining, now many cedants have preferred providers of trust accounts and understand the nuances in the way they work.

“There was a time when some people still wanted a ‘promise to pay’ in place even in a fully collateralised deal,” he said. “That is not the case now. Most people are very happy dealing with the alternative market.”

Redhead added that his experience in Monte Carlo is slightly different from that of traditional players for another reason: he also needs to update stakeholders on any changes to Kinesis’s own capital suppliers or investors. “I have a different capital structure from the traditional players and some clients want to know if this has changed at all or if they are likely to pull out, perhaps because of the softer market. It is just another conversation to have while also explaining the products and services we offer and their structure.

“I am still a reinsurance underwriter and beyond that the conversations are pretty similar.

There will be customers looking to renegotiate their deals and coverages and seeking different ways we can help them,” he added. “There will be further downward pressure on rates, I believe, and that will be a topic of conversation across the conference. Monte Carlo is really just a scene-setter for the real negotiations. But these face-to-face meetings are, nevertheless, very important as this is still a people business.

“Analytics are increasingly important but risk models can also be a very blunt instrument in certain scenarios.”