Antares head of ceded reinsurance Richard Anson tells GR his focus and strategies for dealing with the current economic climate, alternative reinsurance structures, and what he expects from brokers
To what degree do you use alternative reinsurance structures?
We are, at present, evaluating the merits of whole account aggregate coverage and this may form a part of our programme in 2014. We believe this will allow us to pool slightly increased retentions across our business lines while managing the potential for several lines to suffer losses in the same year. This should benefit both expected profit and return on capital.
We are also investigating composite multi-class catastrophe coverage as we feel this will better manage the syndicate’s retention in large events.
How much premium do you usually cede to reinsurers?
We have internal tolerances aimed at capping both our global reinsurance spend and the spend on individual lines. While we generally keep to these, I am sure we would break the tolerances if a particularly attractive deal became available.
This is the difference between a core purchase and a more opportunistic purchase. Core purchases are aimed at managing our capital or the position of our gross and net Realistic Disaster Scenario (RDS) limits agreed with Lloyd’s.
These would form a part of the annual reinsurance plan. Opportunistic purchases are more likely to be aimed at managing the profit and loss or at dealing with an unexpected peak in exposure. We do not have many opportunistic purchases at present.
How do you approach what to buy and the structuring of your reinsurance programme?
In common with other Lloyd’s syndicates, Antares has invested heavily in an internal model driven by the requirements of Solvency II. Reinsurance purchasing is one area where we have been able to leverage this investment via the comparison of alternative reinsurance structures.
We did this for the first time in planning our renewals at 1 January and the metrics available, in particular relating to capital impacts, really helped in the discussions with our board. It’s imperative that larger purchasing decisions should be made on this basis.
A longer term goal is to ensure that we only buy the cover we need. This may sound obvious. However, like many Lloyd’s syndicates Antares has tended to purchase individual programmes by line of business. This means that the individual underwriting teams get exactly the cover they believe they need for their line rather than what is necessary from a holistic, Syndicate-wide perspective.
It’s also a great way of ceding valuable diversification to our reinsurers. As the internal model develops we expect to find some real benefits in this area.
How do you evaluate the service you receive from reinsurers and brokers, and how could it be improved?
An ideal reinsurer for Antares would be involved in several of our programmes, preferably protecting lines of business that do not aggregate with each other. We believe that a relationship based on broader participations is more able to withstand the fluctuations that are inherent in reinsurance transactions.
We expect four key elements from our brokers (in no particular order): advocacy, impartial advice, access to markets and product innovation. Advocacy is a key feature as brokers represent us with our reinsurers. We need to know that our brokers will do this to their utmost. Impartial advice almost goes without saying. However, this raises the issue that broker remuneration is often out of kilter with broker performance.
Access to markets is a key differentiator, particularly in lines where capacity is more limited. New markets can also lead to product innovation, although we have also seen innovative solutions coming from traditional reinsurers.
What do you expect to have the biggest influence on reinsurance pricing in the types of coverage that you buy?
We have a diverse portfolio at Antares, so we are dealing with a variety of reinsurance markets each at different stages in their cycles. For 2013, marine reinsurance hardened in reaction to losses from Superstorm Sandy and the Costa Concordia sinking.
The reinsurance markets for property excess of loss, terrorism and our casualty lines were relatively flat, while aviation showed some softening. There are two main themes driving this disparity: losses (or the lack thereof), and the availability of capacity relative to the demand for cover.
The capacity side is interesting, particularly for property retrocession, as there seems to be an over-hang of capital from non-traditional sources looking to be deployed. This is starting to create pricing pressure within this line. We have also seen elements of non-traditional capacity being deployed outside of property and into less modelled lines such as marine and terrorism. This latter development is interesting from a buying perspective.
To what extent are c-suite executives getting involved in the buying process?
Each year we create a reinsurance plan that sits alongside the Syndicate Business Forecast (SBF), which is submitted to Lloyd’s. Like the SBF, the reinsurance plan is signed off by the managing agency board. It is right and proper that the board should sign off the reinsurance plan as they are responsible for setting the syndicate’s risk appetite, which is in large part managed via the reinsurance purchase.
Since joining Antares what difference do you think you have made to the business?
The role of head of ceded reinsurance did not exist before I arrived so I have been able to bring increased focus to the buying of our reinsurance. This has meant that we have a much more joined-up approach to our reinsurance purchasing, which is driven much more by syndicate-level metrics than by the perceptions of the individual account managers.
That said, the retentions and limits that have been in place for many years have been there for a reason, so it’s probably been more of an evolution than a revolution. There’s also a need to “bring the underwriters on the journey” as they (quite rightly) are interested in anything which may affect the result on their line of business.
Who do you admire most in the industry and why?
It’s hard to pick individuals out of the organisations that I admire. I have had dealings with Hiscox over many years and have always been impressed with their professionalism and approach to the business. I was also lucky enough to buy some shares in Lancashire a few years ago, so I should probably thank Richard Brindle for his work on my behalf.