Business hungry reinsurers more willing to tailor cover for corporates

Risk managers must be prepared to work with the extra capacity available in order to develop new solutions. Insurers are retaining more risk and ceding less to reinsurers, starving reinsurers of premium. At the same time reinsurance rates continue to fall. Meanwhile, reinsurers have lost out to alternative capital providers that have taken a significant slice of the property catastrophe market, according to Andrew Matson, Managing Director of Aon Benfield ReSolutions. As a result, reinsurers are 'hungry' for business and looking to access insurance and alternative distribution, either directly or by partnering with brokers, distributors or insurers, he said.hide"The market is softening and we see an increased desire among reinsurers and alternative capital providers to access distribution. We are likely to see more creative wholesale bulk transactions and a more efficient distribution chain. While for very large and complex risks there may be the opportunity for more bespoke solutions," said Mr Matson. The soft reinsurance market is presenting an opportunity for risk managers that can articulate their risks and demonstrate demand for solutions, according to Mr Matson. "We are in a period of creativity that offers risk managers an abundance of sources of product. But insurers and reinsurers can't come up with solutions unless risk managers and clients demonstrate demand," he said. Mr Matson's Aon Benfield ReSolutions team operates across the whole of Aon to develop alternative solutions and structures that fall outside the realm of traditional reinsurance. It is one of the firm's fastest growing business units and has seen an up-tick in successful deals over recent years. These have ranged from weather insurance hedges to new coverages in the mining, aviation and extended warranty markets. "We are seeing the influence of excess capacity in the weather space," said Kurt Cripps, Global Head of Weather Re/insurance at Aon Benfield. "There has been huge traction [with insurance-led weather hedging products]. There is now a massive influx of capital and this has helped drive the price down for bespoke weather solutions for large corporates," he said. Companies with significant weather exposures-such as those in the energy, food, agriculture, construction, retail, sports and hospitality sectors-can purchase hedging products that use captives to access reinsurance and alternative capital. "This is one of the most prominent examples of where new capital providers, such as hedge funds, are extending their activities to corporates," said Mr Cripps. Mr Cripps has helped corporates secure coverage more tailored to their weather-related risks. By overlaying historical weather data with a firm's individual loss history, correlations can be identified and coverage can subsequently be bought to indemnify against specific future weather conditions, he said. Aon Benfield has also been matching demand for bespoke products with capital and niche insurers. For example, Aon Benfield used reinsurance capacity to develop a 15-year extended warranty for electronics firm EDMI, which provides energy smart meters and communication hubs in the UK. Even for tried and tested products the majority of insurers will not offer extended warranties for periods in excess of ten years. The new Aon product also blends cyber cover with extended warranty insurance. The soft market also helped Aon overcome a twenty-year problem for another client. It created what is thought to be the first-ever guarantee that covers the costs associated with a private jet charter being cancelled because of adverse weather, mechanical fault or pilot unavailability. The broker also used reinsurance capacity to create a solution for the mining industry that covers the cost of rescuing miners trapped underground. It has also developed capacity for latent defects cover in the construction industry. All of these products were made possible by excess reinsurance or alternative capital, said Mr Cripps. "We are talking to reinsurers and increasingly see them come to new lines of business," he said. Such products are now possible with the existence of 'dynamic' capacity in the market, as well as better access to data and the development of modelling capabilities in recent years, explained Mr Matson. "In today's market it is now much easier to put bespoke solutions together. Insurers and reinsurers are being more creative," he said. "This is only just starting, but risk managers need to open up and tell their broker everything about their businesses in order to see what they can hedge," said Mr Matson. Risk managers need to articulate the issues and risk factors that affect their businesses, according to Mr Matson. "If you understand how a peril affects your business it creates opportunities to innovate," he said. "Risk managers need to articulate the risks that threaten their balance sheets if they are to get a targeted solution. In a soft market, insurers and reinsurers are now much more willing to consider them and help develop solutions. If you can demonstrate demand, insurers and reinsurers will work to provide a solution," said Mr Matson. Low premium rates, good loss experience and diminishing margins in an arena of surplus capital are prompting reinsurers to be more creative in their product offering, agreed Matthew Haine, SVP at Guy Carpenter Fac. "Risk managers can enhance their insurance programmes with a more cohesive and blended insurance/reinsurance approach with a range of products supported in the reinsurance market such as self insured retention protections, broadening of coverage, increase in vertical limits and expansion of natural catastrophe limits," according to Mr Haine. "An astute risk manager can secure a widely varied panel of insurers from the traditional reinsurance and insurance markets to the capital providers in order to achieve the best bespoke insurance policy," he said.

Business hungry reinsurers more willing to tailor cover for corporates

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