It's not enough to just be a reinsurance broker any more.
The head of one of the largest reinsurance brokerage operations said that, as long as a decade ago, if a large firm had 150 brokers, then it might have about another 20 experts assisting with analytics and more sophisticated reinsurance issues. Today, those 150 brokers would probably be matched by another 150 professional support personnel as the nature and complexity of the reinsurance business has matured.
As risk has become far more complex, analytics--modeling, financial analysis and alternative risk issues--have come to be critical to the reinsurance business and the skills needed to successfully work with clients.
And during the past year, one of the biggest challenges for reinsurance brokers has been finding the needed catastrophe coverage, especially in the property markets, as price has increased and capacity declined in the wake of the 2004 hurricane season.
Those skills, especially at catastrophe analysis, have become increasingly important to clients.
But some things remain the same. The Monte Carlo Reinsurance Rendezvous every September exemplifies how the reinsurance marketplace still depends upon person-to-person contact.
Each year, a few thousand professionals from insurance companies, reinsurers and their brokers gather along the French Rivera to begin the annual reinsurance renewal dance. Today, it's mostly an opportunity for the different parties to begin the negotiations and renew face-to-face contact--the deals are not really negotiated until months later.
But Monte Carlo shows that reinsurance is still built on relationships--relationships that often go back two decades or more. The CEO of one multiline insurance company has been working with the same reinsurance broker for more than 30 years, for instance, and it doesn't look like that relationship will change all that much in the future. Reinsurance relationships tend to be personal, between an individual broker and the insurer that the broker represents in the reinsurance markets.
Reinsurance relationships between the client called a cedent and the broker are built on trust, possibly even more so than the relationship among risk managers and their brokers. Trust between the cedent and the reinsurer is at the core of this continuing characteristic of ongoing, long-term commitment between the cedent and the broker.
THE BROKER COMMUNITY
"The reinsurance marketplace is really rather small," remarks the chief underwriter for a reinsurer. "Your reputation, for good or bad, gets around pretty quickly."
While there might be thousands of clients in the primary insurance markets, cedents number in the hundreds.
Although there isn't any hard industry data, cedents tend to use a single reinsurance brokerage firm rather than splitting the brokerage business up among a variety of them. A few firms dominate the marketplace--Aon Re, Guy Carpenter, Willis Re, Benfield and JLT Risk Solutions, among others. There continues to be consolidation within the reinsurance brokerage business with the larger firms acquiring the smaller, regional operations, especially in foreign markets.
More and more cedents engage in a sophisticated analysis that looks at reinsurance as one kind of use of capital. The buying decision then hinges on an insurance company's best use of capital, considering its risk appetite, its financial condition, and a host of other financial and business factors. Today, more and more reinsurance brokers are becoming like investment advisors and a bit less like the old-fashioned deal-makers.
It's the reinsurers themselves that probably have a better understanding of the strengths and weaknesses of the reinsurance brokers because they work with almost all of them on a regular basis.
And what do they want to see in reinsurance brokers?Ethics is a critical component because of the personal nature of the business. Reinsurers want brokers to bring them potential clients with a risk profile that matches the needs of their own portfolio.
The largest cedents, which would be the big insurance companies, also tend to have substantial, in-house reinsurance operations and often structure their own deals. Typically, especially among the large cedents, claims issues and reinsurance recoveries are handled by the insurance firms' own in-house operations.
The reinsurance brokers tend to focus on specific kinds of insurance. For this Reinsurance Power BrokerTM
feature, we chose to look at six areas:
* Property reinsurance, including coverage from catastrophes like Hurricane Katrina.
* Casualty reinsurance, including general liability umbrella coverage and workers' compensation.
* Professional liability reinsurance, including directors' and officers' insurance, medical malpractice, and errors and omissions.
* Retrocession reinsurance, or reinsurance bought by one reinsurance company from another reinsurance company.
* Facultative reinsurance, generally speaking, a specific, single transaction based on reinsuring a particular risk.
* Marine reinsurance, which typically focuses on marine- and energy-related risks.
We interviewed both cedents and reinsurers and asked them to identify individual brokers who they thought were the best.
Frequently, because of the increasingly analytical nature of the business, reinsurers mentioned a team of brokers from a particular firm. So rather than put the focus entirely on the individual broker, the listings that follow are meant to also highlight the strengths of the brokerage firms in those categories.
This is our initial effort at looking at the reinsurance brokerage community. We plan to add additional categories to our analysis next year and list additional brokers with more highlights of their efforts.
JACK ROBERTS is editor-in-chief of Risk & Insurance®. He can be reached at firstname.lastname@example.org.
April 1, 2007
Copyright 2007© LRP Publications