A good working relationship is based on trust and understanding each other’s core values. So says the group head of ceded reinsurance at Kiln, part of Tokio Marine
Habib Kattan started buying reinsurance 10 years ago when his friend Chris O’Kane, then Wellington Underwriting’s chief underwriting officer, asked him to assist with buying reinsurance for Syndicate 2020.
When O’Kane founded Bermudan (re)insurer Aspen Insurance Holdings in 2002, Kattan became the reinsurance manager of Aspen Insurance UK. He joined Kiln in a similar role in 2004 and has been there ever since.
Kattan’s insurance career spans 33 years. Like many of his peers, he was previously a broker. He started at Willis, where he handled Arab market accounts, and his later move to a smaller firm allowed him to gain greater international experience.
Q: What do you look for most in your reinsurers?
A: Kiln is incredibly lucky in that we have traded with our reinsurers for a very long time. For them and for us, the relationship is more about underwriting the culture of the business rather than the subject matter of the business. It is a question of trust and understanding each other’s core values, which is important.
The security of our reinsurers is important to us. Counterparty credit risk is a big driver. We keep an eye on our partners’ balance sheets, financial performance and market share of catastrophe losses.
Q: Do you think we have entered – or re-entered – a soft cycle of the market?
A: The primary insurance market is certainly under pressure. The reinsurance market for non-correlating classes – those classes of business that are not susceptible to US natural catastrophes – is softening and is less challenging than the retro market. In 2011 we are expecting to see prices fall in proportion with the fall in prices we are seeing on the original inwards business. The retro market, however, will always be challenging purely because of supply, demand and capital adequacy ratios. The cost of capital for writing a retro account makes that market very difficult.
Q: How does Kiln structure its reinsurance programme?
A: There is a collegiate approach to buying reinsurance at Kiln. The outwards reinsurance team is invited to attend the business planning sessions of all group syndicates. Underwriters make decisions about their reinsurance requirements and we, the outwards reinsurance team, challenge those decisions both qualitatively and quantitatively.
We do quite a lot of analytical work with our colleagues from underwriting, the catastrophe risk and the capital modelling teams.
For the non-marine classes, catastrophe risk modelling is a key driver in the management of our portfolios and the assessment of how much reinsurance we need to buy. The models, as a catastrophe risk management tool, are extremely helpful.
Q: Will you be making any changes to your reinsurance programme this year?
A: In terms of reinsurer panel? No. In terms of coverage? Probably. A little bit of tweaking here and there, but nothing radical. If, for example, we cannot get a reduction in cost, we will aim at a risk-adjusted improvement: either by lowering of the level of attachment or by some other form where coverage is expanded a bit to give us that little extra value.
Q: In general, how has the practice of buying reinsurance changed?
A: The broker’s role has changed. As a result of current disciplines, such as good corporate governance and enterprise risk management, buyers now have to validate and sign off their data before it is packaged and sent to reinsurers.
In the past, we would say to a broker: ‘This is what we are looking for. Can you please structure something and place it for us?’ These days we cannot do that.
Buyers take a much more active role, and the broker’s role has evolved from being service-oriented in terms of packaging reinsurance information and placing a programme, to being a blend of adviser, risk manager as well as placement broker.
Brokers have an additional big role to play in analysing a buyer’s output from the capital and catastrophe risk models. Another expert opinion from brokers is always welcome. They have huge intellectual and technological resources at their disposal, which are very helpful to buyers.
Q: How has the current market environment affected your reinsurance buying?
A: Not much. As I said earlier, we tend to favour long-term relationships with our reinsurers. We are therefore not pure opportunistic buyers. We do not mind ceding away premium in a hard market. We recognise that, like us, our reinsurers are in business to make a profit.
However, when a loss happens and we need to recover from our reinsurers, we hope that the long-term relationships we have worked hard to establish over the decades with many of our trading partners will serve us well.
Q: How will Solvency II change the way you buy reinsurance?
A: Solvency II will affect all of us, but until it is implemented it is too early to assess exactly what effect it will have. The ideal scenario for Kiln would be for our internal capital model to be accepted as submitted to Lloyd’s.
Q: Describe your average day in the office.
A: My team’s role is gathering data, collating it, analysing it, packaging it, marketing it, processing it and reporting it, following the completion of placement. My personal role in addition to managing my team is about managing relationships internally and externally. In placing Kiln’s outwards programmes, my colleagues and I go on roadshows with our brokers to visit our reinsurers and essentially market the various Kiln businesses.
Another role of the team is reinsurance claims recoveries. Keeping on top of reinsurance debt is very important to us. We have taken that function out of the finance department because we like to keep a close eye on that process and make sure that recoveries are made speedily.
Q: How is your performance measured?
A: Our performance is measured on an annual basis, as well as in the long term. In the short term, reinsurance may be viewed as a cost because premium is paid every year, but recoveries are not made with the same frequency. However, over the long term, reinsurance does the job it is designed to do.
Q: How do you relax?
A: I have a passion for motor-racing and cooking. GR