Buyers face penalties for switching reinsurers

The increasing influence of capital markets-backed reinsurance capacity is likely to play a central role at this year’s annual Rendez-Vous de Septembre in Monte Carlo this weekend.

Reinsurance buyers who nudge aside long-term reinsurers to get cheaper rates from capital-markets providers may be given short shrift however.

QBE Re chief underwriting officer Jonathan Parry said: “If clients drop reinsurers after they pay a significant loss, go to other reinsurers, and then try and come back to the conventional market, they are going to be viewed as a non-continuity client and the business will be rated accordingly.”

Non-continuity clients will be rated accordingly”

Jonathan Parry, QBE Re

While he noted many reinsurance buyers are loyal to long-serving reinsurers, some may be tempted away by lower rates.

“There are some others who, it is becoming apparent, are more prepared to swap to different reinsurers that haven’t paid the loss for a cheaper price.”

While capital markets participation in the industry is far from new, it caused a stir at the 1 June renewals this year when coverage was bought for the hurricane-prone US state of Florida.

Rate increases were lower than expected, which many blamed on the influx of capital markets-backed capacity into the lower layers of cover typically dominated by traditional reinsurers.

Some are dismissive of the influence however. Swiss Re’s EMEA reinsurance chief executive Jean-Jacques Henchoz said: “I don’t believe capital markets capacity is hugely significant in the current environment. It is an important component, particularly in areas where there is a need for capacity … but I’m not sure we can call it a trend.”