Size of reinsurance partners less important than diversity of panel

The overall size and scale of a reinsurance partner is deemed less important than having a well-diversified panel of reinsurers, according to a survey of European reinsurance buyers and brokers.

During the soft market period it has been consistently stated that in order to survive the challenging market environment reinsurers should look for scale and their own global diversification.

But to reinsurance buyers size doesn’t matter, at least not as much as the diversity of their panel of reinsurers.

According to the survey, which was undertaken on behalf of Zug, Switzerland based reinsurance firm SIGNAL IDUNA Reinsurance Ltd (SI Re) by Dr. Schanz, Alms & Company, reinsurance buyers are looking for diversity among their counterparts, as well as continuity and longevity of reinsurer relationships.

The survey is based on in-depth interviews with senior reinsurance purchasing executives from 28 European insurance companies and brokers that represent roughly €51 billion in non-life premiums.

Size alone is not sufficient to address the broad spectrum of reinsurance buyers needs in the European market place, the survey concludes.

Bertrand R. Wollner, Chief Executive Officer of SI Re, commented; “We are very much encouraged by the report’s findings, which we believe are of significant relevance to the reinsurance market at large. Our objective was to test the validity of the “big is beautiful” hypothesis which, as demonstrated by the survey findings runs counter to our cedants’ needs and the fundamental criteria that drive their reinsurance purchasing and panel selection decisions.”

Apparently, tiering of reinsurers is not as important as it is often made out, and size is only meaningful where it comes with high security, large available capacity and continuity.

In fact, insurers view the inclusion of reinsurers of all sizes as equally important when arranging their reinsurance programs and having a mix of counterparts is seen as offering the highest levels of security and the opportunity to create long-term relationships.

The majority of insurers surveyed have at least 10 reinsurers on their panels, but some many more and over 30 where it is short-tail risks.

Typically, programs can include a smaller number of leading reinsurers, then many following markets, which gives the breadth of experience and capital sources desired.

Over the last two years reinsurer panel sizes have actually increased, the survey found, suggesting that the centralisation, rationalisation and slimming down of panels seen a few years ago may be reversing to a degree.

This is all good news for the ILS fund market, which are often much smaller than reinsurers although able to offer comparable coverage on a fully collateralized basis.

It shows that reinsurance buyers are not averse to having smaller counterparts, such as smaller ILS funds, in their panels. And when you add in the security of coverage being collateralized in an investment trust, in fact the ILS funds could be looked on as a more attractive counterpart than a smaller reinsurer using a leveraged balance-sheet.