Reinsurance pricing and placing platform provider Tremor Technologies has reported a strong correlation between the likelihood of a successful allocation and the number of points in a reinsurer’s supply curve.
Reinsurers who provide richer supply curves are therefore more likely to achieve their target lines, Tremor suggests, particularly at time where price discovery has proved “almost non-existent” at renewals.
A supply curve is a graphic representation of the correlation between the cost of a service and the quantity supplied for a given period. For reinsurers, the number of points in a supply curve can be an important metric that captures the overall complexity of an authorization.
“As the number of points increases, so too does the allocative precision that the reinsurer will get; reinsurers with more points in their supply curve tune their line based on the final price chosen by the cedent,” Tremor argues.
More than 40% of Tremor supply curves include at least 4 points, which, according to the platform’s data, gives them a more than 80% likelihood of achieving or exceeding their allocation targets.
“Why is this important? Reinsurers are portfolio managers – they have different pricing strategies that vary with quantity, peril, region and more,” explained Tremor CEO Sean Bourgeois. “Only Tremor offers reinsurers the opportunity to express their precise and complete strategy per placement in confidence – which allows us to deliver transparent, competitive market clearing prices for cedents every time.”
Bourgeois continued: “Insurers and reinsurers have just experienced a historically challenging renewal season where the negotiation process was painful and extensive, nobody ended up with what they wanted and price discovery was almost non-existent. The common process this year of re-issuing FOTs and short placements said it all – the prices were wrong and there was no visibility to understand incremental cost in real time.”
“Tremor offers the reinsurance market tools so that both sides can avoid this pain, delivering true market clearing prices with real time incremental cost analysis – this is all possible because we are able to capture reinsurer’s unique strategies and risk appetites in a way that only Tremor’s modern market tech and confidentiality rules can.”