Endurance’s chief underwriting officer for Europe and Asia believes pro-rata business will stay intact

Scales: A Fine Balance

While some market commentators are predicting the death of traditional proportional reinsurance in the face of the rising popularity of excess of loss coverage, Hans-Joachim Guenther, Endurance’s chief underwriting officer for Europe and Asia, disagrees.

“I believe the pro-rata business will stay intact,” he told Global Reinsurance at the Baden-Baden meeting yesterday. “I don’t believe I what many market participants tend to say: that Solvency II is pushing towards more excess of loss and non-proportional covers while the pro-rata business would somewhat die away.”

Guenther contends that cedants will seek a balance of proportional and non-proportional business that suits them, rather than favouring one over the other, particularly given the usefulness of proportional business as a source of capital.

“I see it is a mix of both and maybe with some additional top-layer capacity if the cat capacity purchase is too short in terms of what Solvency II might believe is the right amount and then maybe some aggregate covers.”

The use of proportional versus non-proportional reinsurance is also determined by the type of firm buying the cover. “If you’re a very strongly-capitalised insurance company and you are currently using pro-rata business to leverage you under Solvency I, the rationale for doing that fades under Solvency II,” says Guenther. “If you are a very small mutual company which has no access to capital markets, and you need underwriting capacity to grow your book, you need to start with pro-rata and then add non-proportional deals on top to take out volatility.”