Litmus Analysis, a company that specialises in helping the re/insurance industry understand credit risk and ratings agencies, has released a study of Europe’s independent carriers identifying which cedants are best for reinsurers.
The firm identified almost 80 independent European cedants that spend over €25m annually on their outwards cover.
For their reinsurers, the whole account results from the cohort vary dramatically, says Litmus, noting that even on a 5-year average basis, Ceded Loss Ratios (CLRs) range from single digits to over 300%.
It adds, “21 members of the analysed cohort achieved 5-year averages of below 55% for their reinsurers, 8 of which delivered below 40% outcomes.
“However, 25 gave their reinsurers 5-year average results of over 75%, with nine delivering outcomes in excess of 90%.”
Litmus observes that it’s not just the possibility of writing profitable lines that is a key consideration for reinsurers and brokers, but also the financial strength profile of cedants, yet, it adds that most European cedants are unrated.
It writes, “30 of the cohort have a sufficient data history with A.M. Best’s Financial Statement Global service for us to deploy our proprietary financial strength scoring and profiling application, LitmusQ, on them. LitmusQ generates financial scores out of 100, which we benchmark against the international rating scale.”
Taking the cohort member’s size into consideration, the benchmarked results range from ‘bb+’ to ‘a-‘, says Litmus, ignoring size, the range is from ‘bbb’ to ‘aa+’.
Litmus notes that the data for this study were sourced from AM Best’s Financial Suite – Solvency II. adding that the selected cohort were those non-life companies for which 2021 SII data were available, which were not rated by AM Best nor identified by them as part of a larger insurance group, and which in 2020 ceded premiums in excess of €20 m to their reinsurers.
