When it comes to reinsurance purchasing, diversification of reinsurance panels and long-term reinsurer relationships matters more than size, according to a survey released by SIGNAL IDUNA Reinsurance (SI Re).
In an empirical study of reinsurance purchasing habits of the European market, Dr. Schanz, Alms & Company interviewed senior executives responsible for purchasing reinsurance from 28 European insurers and brokers.
The survey found that contrary to the old “big is beautiful” mantra, when it comes to buying reinsurance, carriers are more concerned that their company-specific needs can be met with a wide range of reinsurance products on offer, as well as the continuity of reinsurance relationships.
Bertrand Wollner, Chief Executive Officer (CEO) of SI Re, said the reports findings “are of significant relevance to the reinsurance market at large.
“Our objective was to test the validity of the “big is beautiful” hypothesis which, as demonstrated by the survey findings runs counter to our cedants’ needs and the fundamental criteria that drive their reinsurance purchasing and panel selection decisions,” he said.
Executives said a reinsurers’ tiering alone was not most relevant to their purchasing choice, instead, they look for high security, large available capacity and continuity.
Insurers believe that including a good mix of reinsurers on their panels provides the most security and opportunities to forge long-lasting relationships.
The insurers and brokers interviewed for the survey maintain panels that range from 10 to more than 25 reinsurers, although for short-tail risks this number can easily exceed 30 reinsurers as in these lines relationships are less personalised and often managed by brokers.
The survey concluded that ensuring a maximum degree of security while minimising counter-party risks is the main rationale for broad diversification of reinsurer panels.
The findings of the survey will come as welcome news to the reinsurance industry, where smaller carriers can find themselves squeezed further out of the market as they struggle to compete in a soft market pricing environment, which is extremely competitive.
During the soft market period it has been suggested by some that in order to survive the challenging market environment, reinsurers should look for scale and their own global diversification; but to reinsurance buyers size doesn’t matter as much as the diversity of their panel of reinsurers.
Smaller shares assure continuity, avoid dependencies, give access to a wide variety of expertise and offer the peace of mind that insurers expect from their panel.
Some panels have even increased in size over the past two years to compensate for the larger shares that some reinsurers had built up as a result of mergers and acquisitions.
