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Reinsurance growth to persist as market evolution sees segregation and risk decoupling: Corinthian Re

10th November 2022 - Author: Kassandra Jimenez-Sanchez

The segregation of different areas of expertise within issuing carriers and the decoupling of risk is a trend that will accelerate in the reinsurance industry as it is cost effective and gives consumers and investors more opportunity, according to Christopher Collins, CEO of Corinthian Re.

chris-collins-corinthianThis is where the market is heading to, according to Collins, who sat with Reinsurance News to talk about his views on the current reinsurance market and how it is evolving, as well as Corinthian Re’s future.

When the company started ten years ago, Collins observed that the market had always done things the same way and had become perhaps too cyclical, so he thought about a way to do things differently.

“When we looked at the market, we thought that maybe it should be less cyclic. The way we looked at it was that, if there are investors that are looking to participate and who need returns in a non-correlated space, then they need a way to have access to it,” said Collins.

“So that’s what we started doing. We looked and said, we can’t get into the cat exposed space and try to bracket in an undefinable or unpredictable event. You can have a one in 500-year event that is hard to define and bracket in, but also you can have three of them happening in successive years and dealing with that is something very difficult to do.

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“There’s fantastic modelling for those risks that will continue to make better predictions, but it’s just not a space where we want to try to participate. We need readily definable and predictable types of risk in order to produce readily definable predictable types of returns,” he continued.

Corinthian Re’s typical risk appetite in the US includes commercial trucking liability, commercial auto, personal automobile liability, taxi & limousine auto liability, workers compensation, general liability, property (non-cat), professional lines and speciality personal liability.

“There will always be people that will look at that cat exposed space, whether hard or soft, but the hard or soft market is typically dependent upon the capacity in the space. So, if it opens up and you have more capital markets capacity, no longer relying on asset-heavy, balance-sheet-intensive companies to provide all of the capacity, then it truly becomes a free market,” explained Collins.

The CEO has observed that the market, notably the delegated authority space, has started to see the decoupling of the components inside of a standardised insurance company.

This is the segregation of the different areas of expertise within issuing carriers and the decoupling of the risk segment. For example, explained Collins, underwriting teams that branch off and start their own programs at their own agencies and outsource other areas of expertise.

This is seen as a much more lucrative opportunity, Collins noted. “Smaller agencies involve less people which makes it cheaper to run and being able to outsource everything else adds to the efficiency. This is where the opportunity lies for reinsurers. By viewing the market in this way reinsurance can also be seen and used as an outsourced commodity.”

By taking this position, Corinthian has decided to stay away from catastrophe lines and focus on more predictable lines that will provide specific returns. In their view, this structure allows them to provide investors with more choice.

Collins said: “We believe that there’s a structured solution mechanism that’s going to continue to evolve throughout reinsurance, where not only reinsurance companies can operate how they normally do, but ILS investors, as they come in, will get to pick and choose where along the risk/reward scale they want to participate.

“When reinsurance is viewed that way, it’s less of a hard market or soft market because reinsurance is a debt style risk. And if it is debt style risk it should produce debt style returns.

“If it’s equity style risk, it should get equity returns. I believe that those are the drivers In the market. As far as what happens going forward, I believe that it will continue to evolve and people will pick and choose where they want to play. This evolution will lead to a place where there’s less of a hard or tight market, there’s just more capacity that needs a non-correlated investment class,” said Collins.

The segregation of market components is a trend that is going to continue, Collins believes, with a consolidation effort coming behind it.

He added: “Whether it comes from the private equity space, or the buyers and financial sponsors of these different businesses, they will start to couple the segregated business back together. When they do this there may still be some autonomy between the related entities, but I believe you begin to see the larger groups that own these entities vertically integrate them across their platforms to provide a one-stop shop for any and all of the services”

“Going forward, I think that we’ll see more structured solutions even across nat cat risks, for example. People will be able to come in and participate along that risk set and return set. Investors will have the options to pick and choose.

“I think that we’ll see larger carriers start to take this same approach. They will start to segregate their different areas of expertise, because if it’s truly commoditized, it’s difficult to compete with when there’s a heavy expense load built in.”

By using these structures, Corinthian Re can only see growth in the future as they are getting more exposure to the capital markets. At the same time, Collins believes this growth will also be for the market, the MGA space and the collateralised insurers.

He added: “We’ll continue to see the decoupling of the risk from the rating and from the licence as well. I think we’re going to see that what this shift creates is more positive publicity for the space and the sector where we are, and a rising tide lifts all boats.

“We believe there is going to be a transition from the industry. As this takes place, Corinthian will continue to grow utilising the unique structures we have created.”

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