Cedants Seek Long-Term Re Partnerships

Maintaining a long-term relationship and taking the time to learn about one another's strategic plans and risk appetites are all critical factors in keeping cedants happy in their dealings with reinsurers, a survey by the Flasp?hler Research Group reveals.

“As we build on the one-on-one relationship–mainly trust–we get quicker and more flexible quotes,” according to one of the nearly 700 respondents to Flasp?hler's “2009 Survey Of Ceding Company Attitudes About Reinsurance.”

The results of the survey by the Kansas City, Mo.-based Flasp?hler (summarized on page 12) were released exclusively to NU.

The survey was initiated in 1993 and has been repeated every two years since. Thirty-five reinsurers and 20 lines of business were evaluated by the 696 North American property and casualty buyers queried (representing a 39 percent response rate).

“Because of our long-term relationship, we have gained a certain level of trust and loyalty that inherently improves the relationship,” noted one cedant among the 37 percent of respondents who said their relationship with reinsurers is improving.

Respondents were invited to articulate how their relationships with reinsurers were improving and why.

“Better understanding of overall business strategies and underwriting disciplines…provides better confidence in the overall business,” said one.

“I value the personal relationships in a reinsurance partnership and have found a transition back in that direction over the past few years,” added another.

“I have found our reinsurance partners very open to continuing to support us with our evolving business,” according to one cedant. “This is key to the long-term value of the reinsurance relationship. We spend a lot of time outlining our business plans and directions, and most reinsurers believe in our value proposition and have demonstrated a desire to reinsure us over the long run.”

“More conversations are occurring due to the economic conditions and the implementation of some new lines of business,” reported another respondent. “With increased communication come better relationships.

“The reinsurers we work with have been partners of ours for many years now, and because of the long-term relationship, we see them differentiating our company and business from the broader market,” said one cedant. “In other words, we increasingly feel like we are being given credit for the things that make our organization different.”

“There is a better understanding of our grass-roots problems,” noted another respondent. “The reinsurance world was becoming much too financial-oriented, and the solutions presented were becoming total financial solutions.”

Reinsurers, suggested one cedant, are “becoming more understanding of their own strengths and weaknesses and are not trying as hard to be everything to everybody.”

“We have built the relationship on a long-term approach,” said another respondent. “There has been little turnover, so the primary reinsurer we use knows our appetite, our employees and our business. This makes for an efficient placement of reinsurance. The pricing is also very fair, with not a lot of cyclical price changes–a consistent market.”

Buyers said they have secured better relationships with reinsurers by being more open with them.

“We have made an effort to clearly communicate our company's goals, challenges and risk management techniques,” noted one respondent. “I believe the improved transparency has helped our reinsurers to better understand the nature of our business and the risks they are assuming–which in turn has given them greater confidence that there isn't any large, unidentified risk hidden in our program. We value long-term relationships and want our reinsurers to trust us and to value our business relationship.”

However, it helps to have friends in high places, according to one cedant. “Having direct contact with the president of the reinsurer improves communication between both parties and allows everyone in the transaction to be knowledgeable,” this respondent said.

Sometimes a cedant has to shop the market to regain the attention of their current reinsurer, suggested one buyer.

“Our reinsurer was open to making our contract wording and pricing competitive when we asked for a quote from a competitor at the same time,” this cedant said. “We wish that the changes would have been possible without the need to take our program to market first, but we were pleased with the response from our current carrier.”

Bottom line, according to one respondent, “reinsurers are hungry for the business and are paying attention to the needs of companies and are becoming more automated.”

The majority of those surveyed (58 percent) said their relationships with reinsurers were “not really changing.”

However, there were a few disgruntled buyers who took the opportunity to vent in the survey's open-ended questions. Nearly 5 percent said their relationships with reinsurers were declining, compared to only 1.6 percent in 2007.

“Due to internal restructuring, we have less direct interaction with our reinsurers. This makes it challenging to forge and maintain positive relationships,” complained one cedant.”

“Reinsurers are placing less emphasis on long-term relationships,” said another respondent. “Reinsurers want to recapture losses paid to ceding companies in a much shorter time period. There is a huge disconnect between the hard reinsurance market and the soft primary market.”

“There seems to be little recognition of long-term relationships and our consistency in the market,” according to one cedant. “After several years of submitting zero losses, some reinsurers will just leave the program. If we did the same after a year of losses, that would not be appreciated [by insurance buyers].”

A few respondents cited the pressures of the tough economy as undermining their relationships with reinsurers.

“Market conditions are forcing the reinsurance professionals to reduce expenses, which in and of itself is understood,” said one cedant. “But the resulting effect is less competition in the direct facultative market and treaty reinsurance agreements being negotiated with slight or significant increases. It is putting pricing pressure on primary insurers on the individual account level.”

“Reinsurers seem to be looking for technicalities that will allow them to deny claims,” complained one respondent. “Also, their decisions seem to be made strictly based on their models. Business judgment and relationship seem to be much less important to them.”

One cedant said that “the demands being placed on primary underwriters are onerous, and our business is being excessively re-underwritten.”

Respondents were also asked what feedback they would give to their reinsurance brokers on how to better meet their needs.

“Show value other than buying lunches and dinners,” suggested one cedant. “This includes bringing value to the relationship by demonstrating expertise in product underwriting (understand our business), creative problem-solving, organization skills and facilitation.”

This same respondent also wrote that brokers should “avoid casting a paranoia cloud over letting clients and insurers speak directly with each other. Sometimes that just needs to happen, and quickly and easily without a third-party gatekeeper/bottleneck.”

“Become more sensitive to the fact we are the client and expect them to know our business and be able to provide answers to reinsurers, even if they feel they need to discuss and confirm those answers with us,” advised another cedant. “Too often they act as a Post Office, and I feel we are better off talking directly with the reinsurer.”

“Take the initiative to optimize reinsurance structures and don't wait for competition to come in and force you to respond. Don't take clients for granted,” concluded one respondent.