Australian headquartered insurance and reinsurance group QBE has rationalised its reinsurance spend in 2017, saving over $350 million so far as it restructured its program and made greater use of its Equator Re captive reinsurer.
QBE has recognised annualised reinsurance cost savings of over $350 million, thanks to premium rate reductions, program refinements, restructuring and scale efficiencies, as well as the increasing use of its Bermuda domiciled captive reinsurer, Equator Re.
It achieved these cost savings without any significant increase in the group’s retained exposure, the company said today.
QBE reported a significant worsening of performance in its emerging markets underwriting today, but the company also said that it is putting in place enhanced reinsurance protections with Equator Re in order to help to address this.
Equator Re is an increasingly important piece of the overall QBE re/insurance group platform now, perhaps more so than ever given the softened state of the reinsurance market and competitive state of many commercial insurance lines.
Equator Re provides QBE with a facility into which it can reinsure itself, which means it can effectively extract a greater level of profit from business underwritten at the front-end, by self-reinsuring it within its own captive.
It’s a strategy we see from major insurers like Chubb with its ABR Re as well. As internal reinsurance vehicles offer a way to increase the margin that can be extracted out of the business underwritten by the firm.
Equator Re helps QBE by, “bridging the gap between the Group risk appetite and that of each of the operating divisions while also supporting divisional growth ambitions and facilitating optimisation of the Group’s reinsurance and capital requirements,” the company said.
QBE has replaced some third-party reinsurers in its program, giving Equator Re an increased number of divisional quota share reinsurance arrangements this year.
Equator Re grew its gross written premiums by $250 million or 22% to $1,375 million, largely due to underwriting an increased amount of proportional business as part of QBE’s rationalised reinsurance strategy.
QBE said that the realisation that there would be an ongoing softness in reinsurance pricing led the firm to rationalise its programs this year.
Equator Re provides QBE with a way to maximise margin from the business it underwrites. Given market conditions it is no surprise that the reinsurer is seeing more of its parents business and this is likely a trend that will continue.
We expect other major re/insurance group’s will make greater use of captive or internal reinsurance vehicles, as well as those third-party capital backed joint-venture reinsurers that some have established, as a way to combat the persistent softening.