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European insurers centralizing reinsurance purchases


Many large European insurers have continued to centralize their reinsurance buying and are purchasing less reinsurance, according to a report published Monday by Standard & Poor’s Corp.

But some are taking advantage of competitive reinsurance market conditions to buy multiyear, multiperil coverage or increase their protection for high-severity risks, the New York-based rating agency said.

While European cedents’ buying habits are diverse, and vary across geographies and lines of business, a “clear trend has developed, particularly among larger insurance groups, to centralize and combine reinsurance purchasing within a group structure,” S&P said in the report, “The Latest Twists In the Co-Evolution of European Insurers and Reinsurers.”

Large insurers such as Allianz S.E. and Zurich Insurance Group Ltd. have created their own group entities to approach the reinsurance market from a more centralized perspective, for example, the report said.

“Because organic premium growth in most mature markets across Europe is difficult to come by, primary insurers increasingly find it more sensible to retain more premiums on their own books and potentially benefit from associated profits,” the report said.

Other benefits to centralized reinsurance buying include greater bargaining power with reinsurers when attempting to achieve more favorable rates or terms and conditions, the report said.

Although ceding less reinsurance and retaining potentially more leads to greater volatility for primary insurers’ capital and earnings, most typically can absorb additional regulatory capital requirements, the report said.

And over the past five years of relatively benign natural catastrophe losses, reinsurance captives have, in many cases, become strong profit centers for European insurers, it added.

Cedents in Europe also are taking advantage of competitive reinsurance market conditions to buy nontraditional coverages such as adverse development covers, the report noted.

For example, London-based Aviva P.L.C. recently ceded more than £1 billion ($1.54 billion) of latent exposure in industrial and U.K. employers liability business, the report said.

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