While direct writers feel that relationships with reinsurers are improving, there is still a pretty wide difference of opinion over how well reinsurers understand what direct writers want, according to a new 2007 poll developed by Flaspohler Research Group.
The survey of 588 cedents found that 29.2% of those surveyed believe relations with reinsurers are improving, compared with 5% in 2005, when the last survey was conducted. About 60% of these respondents either make or strongly influence the final ceding decision, according to the survey.
Additionally, 80% of reinsurers responded that they understand what direct writers need, but only 33% of direct writers concurred.
“The big message is that the hardest work has been done. Communication has started,” says Rick Flaspohler, president of Flaspohler Group, Kansas City, Mo. “But there is still work to be done. The biggest pitfall is that reinsurers will stop listening to direct writers.”
The survey found that since 1995, the “very satisfied” response of reinsurers dropped from 67% to a low of 14.9% in 2005, but has edged up to 17.4% in 2007. While Flaspohler says the upward move could be a good sign, he also notes that statistically, it is not a significant change.
The poll is conducted every other year to get a sense of what it is that insurers and reinsurers want. It is co-sponsored by Canada Life Re; Gen Re; Generali USA; Hannover Life Re; MARC; Optimum Re; RGA; Swiss Re; Transamerica Re; Wilton Re; and XL Re Life America.
The survey found that 17.6% of ceding companies said they would place between 20%-30% of total life reinsurance ceded with one reinsurance group; 18.7% said 30%-40%; and 12.7% said 40%-50%.
The percentage of direct writers who would place more than 50% of reinsurance ceded with one reinsurer is considerably lower. The total drops to 8.8% in the 50%-60% range; and continues its decline to 1.3% for the 80%-90% range. However, in the 90-100% range, it ticks up to 6.8%.
Cost was by far the most important consideration when buying reinsurance. The survey found that 48.6% of respondents said that a competitive price was most important, followed by security as determined by an independent agency rating and facultative underwriting support, which garnered 11% and 10.8% responses, respectively. Facultative reinsurance is an arrangement in which both parties have the option of entering into an agreement as opposed to automatically reinsuring business.
But Flaspohler says these findings have to be examined, along with another question in the survey that asks for the reasons a direct writer would consider paying a higher premium to use a specific reinsurer. The question allowed for multiple responses.
Only 9.8% of those ceding companies polled said they would never pay a higher premium.
A total of 49.9% cited facultative services as a reason for paying more, while 43% cited a strong existing relationship. Capacity received a 42.1% response, and a superior rating received a 35.5% response. Terms and treaty conditions came in at 34.5%; superior service, 32%; and product development assistance, 27.4%.
Other factors that would encourage ceding companies to pay more for reinsurance, the survey says, are: a superior underwriting manual, with 26.9%; more experience, 15.9%; a stronger balance sheet, 14.9%; and superior management/leadership, 10.3%.
Concern over reinsurer consolidation was a response that surfaced in the Flaspohler survey, with 51.8% of underwriters and 46.6% of actuaries citing this trend as a critical issue.
But Flaspohler says there are signs that more capital is returning to the life reinsurance market because more discipline has returned to the market.