Worrying about cat distracts from other lines
As alternative capacity floods the market, reinsurers will continue to loosen terms and conditions in order to retain business. That is the view of Paul Horgan, global head of group reinsurance at Zurich Insurance.
“Reinsurers are much more flexible; they're not just seeking the best price,” he said. “Terms and conditions were looser at 7-1 renewals and will remain that way coming into 1-1 as reinsurers are more concerned about coverage than getting every last cent.
“Traditional reinsurers are now recognising that there is lots of competition and to remain relevant they must be open minded.”
Horgan explains that reinsurers need to consider new options to remain relevant against this backdrop of new capital entering the industry.
“Last year, the traditional market let the alternative capacity in and it has forced a new way of thinking,” he said. “This year, the traditional market has the idea and is thinking more proactively.
“Reinsurers must be ready to explore options such as multiple year capacity and longer or shorter tail business while making plans earlier than usual. They need to use their position for things that alternative collateral can't do.”
While many now believe that this new form of capital is here to stay, Horgan notes that there are still some who think it will “move along soon”.
“It's still surprising that there are some reinsurers – and some of the big ones – that are not accepting that the capital is here to stay,” he said.
And as Zurich plans for the renewals negotiations ahead over the coming months, the company is happy to offer some of its business to this new capacity, Horgan said. But he adds that traditional reinsurers need to spend less time worrying about property catastrophe business and more time on other lines, which can often make up the bigger proportion of a buyer’s needs.
“We spend so much time talking about cat business yet 70 percent of our insurance spend is on non-cat risks. We have put some significant risks out there on lines including surety and longer tail casualty lines.
“This is an area where the reinsurers need to spend more time, as the cedants are ceding less and less in that space. They need to spend some time there figuring out how to be more relevant to us in these areas.”