Briefing: Brokers must learn lessons from the unrated Gefion saga

By Saxon East, content director 

Will brokers ever learn? The details of Gefion’s troubled relationship with Tansar, and its introducing brokers, are revealed today by Insurance Times.

The story should be a lesson for any broker keen to partner up with an unrated insurer.

What Gefion, and indeed the other Danish insurers Alpha and Qudos show, is that these unrated insurers are often reliant on reinsurance.

Without an official rating agency to do the work, those reinsurance relationships are very difficult to understand and stress test.

One of the Danish regulator’s key concerns was that Gefion was ’using a simplified method for calculation of the risk-mitigating effect of its reinsurance contracts’. 

Say again? 

A broker, even a larger one with a risk committee, has little chance of understanding the nuances and risks of these reinsurance contracts.

If a broker ever wants to know the unrated reinsurance vipers’ nest they can get into, they should read the incredible reinsurance story behind the collapse of unrated Millburn. 

The businessman at the centre of it was ordered to pay back £13.1m and handed £1m in fines. 

Aside from the reinsurance question, unrated insurers are very much in the spotlight and their troubles are, rightly, highlighted by the press.

These unrated insurers are generally poor at dealing with press relations, and the negative publicity snowballs. 

But you can warn brokers until you are in the blue in the face about the dangers of unrated insurers.

The lure of having a carrier that will price more competitively than the blue chip insurers, and hence the opportunity to win a bucket load of business, is just too tempting to resist.

But remember: there is a very good reason why Aviva prices taxis so high. They crash. A lot. 

A bit like, well, unrated insurers really.