Carsten Thienel says brokers must educate clients on the capital situation
The shaky economic environment has left holes in the asset side of companies’ and syndicates’ balance sheets. Add to this the continuous process of regulatory burden and the demands of Solvency II, and we have a focusing of the minds of market players on their hard capital, capital surrogates and additional reinsurance requirements.
Those companies that have done their homework on enterprise risk management in the past years are certainly ahead of the game and are in much stronger positions than those that have just started thinking about possible solutions.
Ultimately, we believe that additional capital requirements or alternative solutions will lead to higher prices for insurance and reinsurance products. Therefore, investors are naturally expecting constant top- and bottom-line growth and unharmed returns.
It will certainly be a management and broking challenge to convince underwriters and clients that their product prices will suffer from a higher capital allocation burden, especially those who had excellent loss experiences in the past.
It is essential to help clients find the right balance between capital, financial market instruments and traditional reinsurance protections, in order to offer them the best possible solutions for their needs. This may turn out to be complicated, especially in currently difficult classes of business such as surety and trade credit, but companies with a focus on clients’ needs should welcome challenges of this nature.
Carsten Thienel is director of retrocession in the reinsurance division of Cooper Gay