Need a new reinsurance broker? Here's what to look for

'Not all brokers are created equal' might have been adapted from an old adage over the years for various sectors, including the insurance industry, but never has it been more appropriate than in the current climate and specifically, when trying to find a competent reinsurance broker.

The fact is, reinsurance is a niche profession that requires a dedicated set of skills, significant experience and long-standing industry relationships to be truly effective in helping clients mitigate risks.

These are among the top qualities one should interrogate when considering a new reinsurance broker, along with the following:

1.   Global reinsurer reach and reinsurer relationships

A reinsurance broker must have wide and extensive access to global reinsurance markets. This is easier if the reinsurance broker has international operations in the various territories where reinsurers are domiciled. Smaller brokers are also able to achieve the same results by partnering with other reinsurance brokers overseas, particularly in territories where only locally domiciled brokers are licensed to transact reinsurance. Essentially, this cross-border access allows smaller insurers to access reinsurance globally, which is useful when there is no local reinsurance capacity available for the business they want to write.  

2.   Obtaining the most competitive rates and terms for the client

A fundamental role of a reinsurance broker is to negotiate and procure the most competitive premiums, rates and terms for their client. This could be achieved by bundling different businesses together for the reinsurers and could even help in encouraging reinsurers to accept a risk that it might have declined. A reinsurance broker must have the ability to negotiate on the technical aspects of reinsurance pricing and underwriting considerations to ensure that the reinsurers' assumptions are appropriate for the exposure inherent in the insurer's portfolio. A reinsurance broker must have a clear understanding of its client's budget for reinsurance spend and must also be able to assist its client in setting this budget. The broker can achieve this by providing recommendations on which reinsurance structures are most optimal given the client's strategic objectives with regards to capital management as well as clear guidance on the price at which the structure can be successfully placed.

3.   Reinsurance expertise and technical advice

Analytics/actuarial capabilities: A reinsurance broker must have the necessary analytics/actuarial capabilities, as well as access to modelling software tools, to conduct reinsurance optimisation exercises to provide insurers with independent advice on designing and placing reinsurance programmes. Such technical expertise could include catastrophe modelling and enterprise risk management.

Underwriting skills: Some brokers are able to 'underwrite' risks themselves before showing it to reinsurers (more applicable in facultative reinsurance). Clients sometimes experience difficulties in maintaining a loss ratio or combined ratio within margins that will allow them to make an underwriting profit. This could be caused by issues with the general terms and conditions of their policies, risk selection process, policy pricing process, claims reserving, claims settlement process or any other underwriting consideration. A broker must be able to support its clients by reviewing all these processes and making recommendations that could be implemented to redress the portfolio performance. A broker must further be able to determine the correct risk premiums and policy premiums combined with a risk selection methodology that would allow them to make an underwriting profit on the specific line of business under review.

Training: A reinsurance broker must be able to provide reinsurance and insurance product-specific training to its client. Such training can be conducted using specialist resources from within the broking firm or in some cases, outsourced to reinsurers that have the required specialist product skills.

4.   Market intelligence and data

An experienced broker is able to gather and monitor data to provide trends and opportunities for both insurers and reinsurers. Their understanding of how a reinsurer operates and makes decisions will help in getting insurers' risks accepted.

5.   Market security advice

Although rating agencies like S&P and AM Best can be used for reviewing reinsurers' credit ratings (which can be highly time-consuming to monitor), reinsurance brokers are usually privy to the services and credibility of reinsurers, and can help protect insurers' interests.

6.   Back-office competency for handling treaty and facultative business

Claims processing: Reinsurance brokers must be proficient in all technical aspects of reinsurance claims handling and processing. This ensures timeous reinsurance recoveries on behalf of insurers, thereby allowing insurers to focus purely on direct policyholders' needs.

Reinsurance contract wordings: A reinsurance broker must ensure contract certainty guidelines are adequately met, and that both parties have clarity on the terms and conditions of the reinsurance contract. Additionally, a broker should provide documentation for both parties in advance of cover incepting.

Administration of reinsurance contracts, settlement of balances (premiums, claims, fees): The heavy lifting and workload usually comes after a reinsurance contract is placed. For treaty business it relates to the quarterly accounts, which need to be produced and submitted to reinsurers. Reinsurance brokers must ensure that the quarterly accounts are accurate, and sent within the timeframe stipulated in the reinsurance contract.

7.   Filter reinsurance risks to suit risk appetite, portfolio objectives

A reinsurance broker must develop and maintain a mutually beneficial relationship with reinsurers by providing them with access to business that fits within their risk appetite and meets their growth and profitability objectives. Reinsurers are inclined to be more supportive to such reinsurance brokers. This is akin to a sniper having a spotter by his side at all times to guide the reinsurance underwriter in where best to 'take a shot' and underwrite a risk.

To quote HowStuffWorks, the most important job of the spotter is to protect the sniper and the team, and the relationship between a sniper and his spotter is such that both depend on each other for survival.

8.   A presence in London (Lloyd's accredited broker)

In certain markets (e.g. Lloyd's of London), business can only be placed with a Lloyd's syndicate through a Lloyd's broker. As such, reinsurance brokers with a London operation are at a distinct advantage when it comes to placing business into Lloyd's of London.

9.   Skills extending beyond traditional structures and products

A reinsurance broker must have a good understanding of niche insurance products; non-traditional reinsurance products and markets; and the regulatory environments in the territories in which they operate. A reinsurance broker must be agile, flexible and global in its approach to addressing its clients' reinsurance needs - the latter is particularly important for multinational clients.

10. Understanding clients' needs, growth strategy and RI objectives

A reinsurance broker must understand its clients' strategic objectives to advise them on how to effectively use reinsurance to meet its objectives. The broker must provide strategic advice that goes beyond mere reinsurance placement and transaction.