A new report from
Carlos Wong-Fupuy, senior director and author of the report, said: "There are several factors driving increased cessions to the reinsurance market, including favourable pricing, particularly for catastrophe and larger risks that have historically been more expensive to reinsure. Insurers are benefiting from greater risk transfer in high risk layers, a segment of risk where there is abundant capacity, enabling them to reduce volatility and enhance balance sheet protection in the event of major catastrophe losses."
The report further notes that the trend toward increased reinsurance cessions should also be understood in the context of more consolidated buying practices. In recent years, many of the largest cedants have overhauled their reinsurance buying, in part driven by Solvency II. Having adopted such an approach, these cedants were able in most instances to reduce reinsurance spend and increase their retentions. "Now the focus has shifted somewhat, with a greater impetus to increase return on capital," added Carlos Wong-Fupuy. "Cedants are taking advantage of the enhanced bargaining power they have gained from a more centralised approach to managing risk exposures, including utilising reinsurance capital as a cheaper form of contingent capital."
To access a complimentary copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=253475.
Copyright © 2016 by A.M. Best Rating Services, Inc. ALL RIGHTS RESERVED.
Carlos Wong-Fupuy, +(44) 20 7397 0287
Assistant Vice President, Public Relations