Aon’s Marcell: Leveraging property cat dynamics in casualty is a “mistake”
Reinsurers should not seek to exploit the hard market dislocation in property cat to drive unwarranted rate increases in casualty and other long-tail lines because it may backfire, the head of the industry’s largest reinsurance broker warns.
In the final installment of his interview with The Insurer TV, Aon’s Reinsurance Solutions’ CEO Andy Marcell acknowledges some casualty reinsurers have demanded lower ceding commissions during the Q4 renewal discussions.
But he cautions this can harm client relationships where there is not good justification for doing so and at a time when cedants are examining whether they need to buy reinsurance and with which partners.
As previously revealed by this publication, Zurich North America recently trimmed the ceding commission on the D&O treaty by 2 points to 29.5 percent while maintaining a broadly flat cede on its larger casualty deal when it firm ordered its large casualty and financial lines quota shares.
The Insurer also revealed that CNA had to reissue firm order terms for its major 5 December financial lines quota share renewal, trimming the ceding commission after encountering resistance from reinsurers which have been adamant that commissions on D&O deals need to come down.
“Some reinsurers have decided this is a tremendous opportunity for them to drive down ceding commissions, which might push some of our clients to keep more net,” he said.
“Other reinsurers are acting more responsibly in underwriting each individual transaction on its merits.”
The danger for reinsurers, Marcell explained, is that it will simply encourage buyers to retain more longer-tail business. Last month, this publication revealed that Chubb had decided not to renew its Guy Carpenter-placed cyber QS although it has not explained its reasons for doing so.
“Some reinsurers have decided this is a tremendous opportunity for them to drive down ceding commissions, which might push some of our clients to keep more net. Other reinsurers are acting more responsibly in underwriting each individual transaction on its merits.”
“They need more net premiums to pay for the sudden surge in pricing, which the reinsurers have been unable to technically justify in many instances. They need that money to manage their cash flows,” he said.
“Large global buyers, and the large national buyers in every region of the world, are beginning to look more critically at their top 10 reinsurer partners,” Marcell continued.
Marcell visited London earlier this week and said the agenda for one client was to examine: “which reinsurers they are going to trade with on a broad basis”.
“Those reinsurers that can do that will end up with an advantage over those that just deal with each opportunity on a best terms basis without regard to the broader relationship. Those reinsurers that are focused on the broader relationships with those customers will do better.”
During the interview Marcell also warned that client relationships were being tested by some cat reinsurers’ behaviour in the run-up to 1.1.
“What we are urgently asking for is consistency in wordings and contracts so our clients know what it is they are paying for,” he said.
Clients know that they need more to pay more rate, and they're willing to pay more rate, but the justification for some of those rates seems all over the map and there's very little in the way of technical backup to support those rates, in terms of what is adequate, and what is opportunistic,” Marcell added.
“What we are urgently asking for is consistency in wordings and contracts so our clients know what it is they are paying for”
His comments come as some cat reinsurers have told clients they will only write US cat as part of a wider client relationship involving other lines of business.
This week, The Insurer has published two other pieces from this ‘must watch’ exclusive interview with Aon’s reinsurance CEO, Andy Marcell. Below are the links to more content: