Reinsurers explore ways to get closer to primary risks
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In their quest to respond to challenging market conditions, reinsurers are increasing their exposure to primary markets.
Some are taking on more of the risk through binding more proportional coverage.
In proportional coverage, the reinsurer shares all the premiums and losses on the underlying business, less the ceding commission paid to the primary insurer to write the business, said James Eck, vice president and senior credit officer at Moody's Investors Service Inc. in New York.
Casualty reinsurance is mostly proportional coverage, he said.
“If a reinsurer takes a 10% quota share, then it gets 10% of the premiums less the ceding commission and pays 10% of the losses from the first dollar,” Mr. Eck said.
Reinsurer Scor S.E. said that 75% of its April renewals were proportional treaties, which still benefit from increased prices for property/casualty and specialty coverage on the primary insurance market.
Others are more directly active in primary markets, such as Munich Reinsurance Co.'s “primary niche” business.
“In the U.S., part of the long-term strategy of Munich Re is to be operating within the primary niche insurance space as part of our reinsurance umbrella,” said Tony Kuczinski, president and CEO of Munich Reinsurance America Inc. in Princeton, New Jersey.
“We purposely use the term "primary niche' because it is truly a specialty business and, in this current marketplace, we're seeing more opportunities to grow our business in the niche primary insurance space than in the traditional reinsurance space,” he said.
Doing primary market business can bolster a reinsurer's performance.
“Munich Re's activity in the primary niche insurance space supports overall profitable growth at a time when our 2015 reinsurance portfolio year-to-date is slightly smaller than what is was the year prior,” said Mr. Kuczinski.
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