In these challenging times, reinsurers and brokers have a game-changing opportunity to demonstrate their true value, says Julian James.
The financial crisis has taught us that the leverage models of investment banks are not sustainable and that the financial markets are not as clever at pricing risks as originally thought – a consequence of a slavish adherence to financial models. Traditional reinsurers and their brokers now have a game-
changing opportunity to demonstrate their true value. Who will be the winners? For reinsurers it will be those that have the resilience and balance sheet strength and understand that there is no substitute for proper underwriting judgment.
For brokers, the winners will be those that can understand and package risk, engender complete transparency of the risk transfer process, and develop strong long-term counterparty relationships on behalf of their clients. All of which needs to be underpinned by (the much clichéd term)
As we saw at this year’s Baden Baden conference, cedants are focusing on carrier security and affirming long-term trading partnerships with reinsurers. Placement diversity is a major trend as insurers aim to achieve a more balanced spread of risk. Smaller and more flexible reinsurers appear to be doing well in the current climate. It is good to see that Lloyd’s is also operating from a position of some strength, both in terms of its current rating and underwriters’ ability and willingness to provide innovative
solutions to clients.
To some extent we are going back to a traditional reinsurance model, with the demands that places on underwriting rigour and a prudent spread of risk. And let’s not forget that the world is still an
increasingly risky place.
Julian James is CEO of Lockton International.