Lessonsfromreally a hard market

Ben Rose, Co-founder and President of the reinsurance platform Supercede, looks back over a tough year and considers how better insight into timely data could address reinsurer concerns going forward

Long before Hurricane Ian reared its ugly head, my colleague Jerad Leigh, Supercede’s CEO, wrote a timely piece outlining three lessons for cedents looking to get the best results from their reinsurance placements, including how technology can help.

Have those lessons changed, following one of the hardest January 1st renewal seasons in recent memory? With the earth moving beneath their feet, what did successful cedents rely upon to get solid outcomes in distinctly challenging market conditions?

The latter half of 2022 really was a run-up to renewals like no other. On the one hand, we saw demand for reinsurance increase in response to macroeconomic conditions that drove greater loss/cost volatility and inflation of insured values. On the other, we saw supply shrink dramatically against its previously climbing trend, with Aon estimating that global reinsurer capital declined a whopping 17 per cent.

By the time the industry gathered for its annual rendezvous in Monte Carlo in September, reinsurers had started talking up rates – and that was before Hurricane Ian, which arrived two weeks later, an event estimated by Gallagher Re to have an insured cost of US $55billion. It materially drove the US $140billion total for 2022, making it the fifth consecutive year to have crossed the US $100billion threshold. With significant reductions in shareholders’ equity already impacted by changes of price in reinsurers’ investment portfolios, it’s hardly surprising that a number of prominent reinsurers exited the market altogether prior to renewals.

It would be a stretch to say that the industry was in panic by the time of the Baden-Baden meeting, one of the key events in the reinsurance calendar, but there was certainly an excited confusion created by blending a wholehearted return to face-to-face dealmaking with a near-total absence of quotes, which would normally have started to trickle through by then. So there followed a challenging game of musical chairs, throughout which the retro market had yet to put out any chairs.

Facing a market already demanding rate rises on the basis of a retrospectively under-budgeted pandemic, changing climate and war in Ukraine, the January 1, 2023 renewal season was further impacted by the discovery, in reviews of prior year results, of the unplanned prominence of secondary perils in loss runs. While this was tough for cedents – who faced unexpected negotiations about what might be included or excluded in their coverage for 2023 – it was little better for reinsurers, who found themselves under the microscope by both investors and rating agencies.

Despite all this drama, did Jerad give good advice to cedents, back in June? Absolutely. Here’s a reminder of his recommendations.

1 Be faster, to get to market early I couldn’t agree with this one more. In fact, following the requirement of many reinsurers for cedents to explain how they were mitigating the impacts of secondary perils and inflation, we shouldn’t limit this characteristic of being fast to reaching market early. Rather, we should see it as a trait of nimbleness: empowering the buyer to address reinsurer concerns rapidly and to support conversations with data, even when market conditions are evolving.

Data preparation is too often a once-per-year, months-long activity, which is impossible to repeat in the throes of renewal negotiations. Cedents using tools such as Supercede operated with a substantial advantage during the January 1, 2023 renewals by bringing this preparation cycle down to a matter of days or weeks.

2 Present cleaner, clearer data

Once again, Jerad is on the money in

Ascot Group

highlighting the importance of data quality for effective reinsurer relationships.

In his January 1 renewals lecture for the CII’s Insurance Institute London, Aon’s Mike Van Slooten drew particular attention to the same lesson, arguing that for cedents facing harder markets ‘transparency and data quality are now critical’.

Many cedents can only provide a blurry or outdated impression of their portfolios, to be treated differently. In doing so, they avoid the worst of reinsurance pricing cycles.

3 Cede smarter

The potential for horse-trading deals during the most recent renewal season was enormous: a cedent’s ability to pair the bitter pill of their catastrophe portfolio with more palatable exposures from casualty and speciality books would have gone a long way towards helping a reinsurer digest more moderate rate change expectations. But it’s not easy to pull off.

which makes it challenging to avoid being the victims of broad reinsurer assumptions. Conversely, buyers who are able to take a more dynamic approach to submission exhibit creation are able to deploy data as evidence for differentiation, and so can present an effective story for why their case deserves

Unfortunately, many cedents were hamstrung by the challenges of grouping and ungrouping portfolio views that had for years or decades been presented only through a single, consistent lens. Attempts to juxtapose profiles, bordereaux, loss runs and rate changes across subsections at short notice saw outwards analysts quagmired in a sticky spreadsheet spaghetti.

As Jerad said many months before this memorable renewal season, now is the time when market leaders will take the opportunity to use technology to win the reinsurance race, by being smart, cleaner and faster.

A Radical Improvement In Data Preparation With A Digital Reinsurance Tool

Last year, Ascot Group’s Ceded

Re team began the familiar task of collecting vast amounts of complex submission data to ensure placements were out to market on time.

Supercede was utilised for sample submission pack data to determine how data preparation could be vastly streamlined through its smart import wizard and powerful validation tools.

The Challenge

Quantity and management of data created concern around binding placements in timely manner.

The Ascot team was faced with collating considerable quantities of data to form submission packs for each of its global portfolios and entities.

Cleansing data was time-consuming and meant data cuts had to occur long before treaty renewal.

The data was also owned by various personnel within the organisation, with varying levels of detail, depending on the line of business.

Reconciling Ascot’s internal and broker data required significant communication between parties to ensure matching of information and correct interpretation.

The Solution

Supercede enabled consolidation, formatting and accessibility of data. After completing a trial of Supercede’s Packs product, Ascot has entered into a pilot scheme in order to assess the capabilities of Supercede in real placements with greater complexity.

The teams from Ascot and Supercede are working to get renewal data into the Supercede platform for Ascot’s mid-year renewals, which include property and casualty renewals.

The Result

An opportunity for faster placements, easier data management, and manual review reduction.

The Ascot team wishes to further explore how Supercede is able to help get their placements bound in a faster time frame through its powerful data management and automation tools.

Diminishing the need for back-and-forth clarification with broking teams resulted in a dramatic reduction in time for submission processes. This applied both in terms of the initial cleansing and broker interaction.

The Conclusion

In future, Ascot will be able to cut data at a later point to provide more up-to-the minute information.

Improvements in data management enabled easy reconciliation of data, so more time could be spent on deal structure and finding the best markets to support the renewal.

“Supercede was very good at organising and managing our submission data,” says Greg Waide, Ascot’s head of reinsurance. “Having one workspace for our packs, which we can handily share with our brokers, makes it very easy to get everything sent off in time.”