Fewer Markets, Higher Prices Create Strong Demand For Broker Services
Demand is up for broker services as consolidation in the reinsurance industry, plus higher prices generally, leaves risk managers fewer markets to choose from, reports Brian McGuire, Senior Vice President of U.S. RE.
"Buyers of reinsurance in today's harder market want a broker who can find the coverage they need at a price they can afford. Buyers dealing exclusively with direct writers often find they have no place to go when the direct writer can't meet their needs. Creative brokers offer clients unbiased opinions and a choice of solutions," says Mr. McGuire. "We do our best to come up with innovative proposals that will bring buyers and reinsurers together."
He points out that the current market "has given U.S. RE enormous opportunities to bid on new business from clients that were having difficulty meeting their requirements elsewhere." Consolidation adds to the problems facing reinsurance buyers. "The poor underwriting results of 2000 and prior years are now concentrated among fewer reinsurers. As the number of players gets smaller, buyers are having an increasingly tough time putting together economical reinsurance programs" according to Mr. McGuire. Only 32 reinsurance companies report results to the Reinsurance Association of America today, compared with 74 in 1989 and 149 in 1982.
"The pressure to improve profits will keep prices moving up for some time to come. While reinsurers showed some improvement in the first quarter, we expect the remainder of the year to be impacted by higher losses. Coming off a combined of 114 in December, the industry faces a long road back to adequate bottom-line results. To generate a 12 percent return on investment, reinsurers must write to a combined ratio of 96 percent. This presents a major challenge to most companies," in Mr. McGuire's opinion.
Present returns are not attracting much in the way of new capital into the reinsurance sector, according to the U.S. RE executive. "Some new capital is being provided for finite reinsurance which is a long-time specialty of U.S. RE, but there's little capital out there to support the growing demand for conventional reinsurance. All this puts a premium on creative broker services."