Conning: A $24B Reinsurance Misunderstanding
By Daniel Hays
NU Online News Service, July 19, 2 :15 p.m. EDT?There is a huge variance in the payouts that insurers expect to collect from claims with reinsurers and the amount reinsurers expect to pay them, a new study has found.[@@]
The finding was made by Conning Research and Consulting, Inc. in Hartford, which said the multi-billion dollar discrepancy may develop into a critical concern for the industry, according to a new study.
Clint Harris, Conning Research vice president, said it creates the potential for losses to be understated, which is the "same situation as when you've got an underreserve."
"While there are filing data issues that distort the net gap calculation, we estimate that it was between $14- and $24 billion in 2003," said Mr. Harris
"The increasing recoverable values expose the industry's increasing dependence on a financially healthy reinsurance sector," he added.
The Conning Research & Consulting study, "Reinsurance Recoverables: Mind the Gap," analyzes the current state of reinsurance recoverables, and examines key issues and industry best practices for managing this huge counterparty risk.
"Our study found that as recoverables have grown, so has the gap between cedant and reinsurer expectations," said Stephan Christiansen, director of research at Conning Research. "The rate of recoverables growth slowed from its 29 percent high in 2001 to 6 percent in 2003, yet the aggregate recoverable gap continued to grow at a 22 percent rate in 2003."
However, the expectations gap does not appear to be a universal condition between cedants and their reinsurers, Conning said.
The company found that some reinsurers consistently report assumed liabilities that are near or exceed their cedants' reported expectations.
Conning Research analysis found that there is no particular pattern in any major segment of the reinsurance market (direct, large broker, medium broker) or the cedant market (top 10 commercial and other top 100 commercial).
Mr. Harris said the research was based on statutory data filed with regulators.
The study can be purchased from Conning Research & Consulting, Inc., by calling (888) 707-1177 or via the company's Web site at www.conningresearch.com.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.