Mutual insurers to benefit from third-party capital at renewals: Willis Re

Third-party and alternative capital’s interest in the reinsurance market, which has helped to put pressure on reinsurance prices resulting in favourable buying conditions, is set to benefit mutual insurers at the upcoming January renewals, according to reinsurance broker Willis Re.

As alternative capital continues to flow into the global reinsurance market, creating more attractive buying opportunities for primary insurers, mutual insurers are one of the groups that stand to benefit the most, according to Robin Swindell, Executive Vice President of Willis Re.

According to Swindell; “Mutual insurers have a unique ownership structure where policyholders, not external shareholders, are the ultimate owners. This means they have less access to other forms of capital, and as a result, mutual insurers are often heavily reliant on reinsurance to provide them with additional capital to deal with catastrophes and large losses.”

The abundance of capacity in the reinsurance market, both from alternative and traditional sources as reinsurers are largely well-capitalised, has created market conditions that are conducive to reinsurance purchasing, Swindell said.

Swindell commented; “The cost of property catastrophe reinsurance is falling, and well-managed renewal negotiations have the potential to make this an immediate and easily quantifiable benefit. Increasing competition amongst reinsurers also provides incentives for them to be more flexible about contract conditions. This provides a valuable opportunity for a mutual to incorporate the flexibility within their reinsurance arrangements to address the coverage needs of members, and close any gaps that have arisen between the reinsurance and original policies.”

Greater choice in terms of source of reinsurance capital and counterparties, is another, perhaps less tangible, benefit for mutual insurers, according to Swindell.

Greater choice, increased flexibility, perhaps eased terms and definitely reduced pricing. These are all likely to be features of the upcoming January reinsurance renewals that any primary insurer will be able to take advantage of. Alternative capital has certainly been a contributing factor to current market conditions, alongside high levels of capital across the sector and a lack of large catastrophe loss events.

For reinsurers the concern here must be whether alternative sources of reinsurance capacity can appear more attractive to insurers such as mutuals than traditional reinsurance capacity can. Which can offer the greatest flexibility, best pricing, most attractive terms while offering excellence in client servicing? The sources of reinsurance capacity that can offer all of this, and more, may just be the winners at renewal season.

Swindell said that Willis Re will be pointing out to mutual insurer clients that now is the time to take advantage of changes in the reinsurance marketplace. He also said it is also important to remind reinsurers that they should treat mutuals as preferred customers, which is sound advice with renewal season fast approaching.

The real message here is that the reinsurance market is offering a lot more options to insurers looking for coverage right now, perhaps more options than ever before. In a climate like this differentiation is key, alongside underwriting standards and an ability to support clients over the long-term. While the market resolves how to differentiate itself, mutuals and other primary insurers stand well placed to benefit from attractive reinsurance buying conditions.

We wrote about similar comments from Willis Re back in April: Alternative reinsurance capital trend an opportunity for mutual insurers.