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Chapter 9 Reinsurance market 9/3

A1 Consolidation
Consolidation of the reinsurance market and the experience of reinsurance failure have caused insurers
The security of the
to be reluctant to place all of a programme with a single reinsurer. The security of the reinsurer is a reinsurer is a
paramount consideration for the insurer. paramount
consideration for the
insurer
Consolidation both in the insurance and the reinsurance markets has resulted in reinsurers having fewer
clients, and many of these have a financial strength equal to or superior to their own. Insurers have
fewer reinsurers with which to place their business and many, recognising the importance of relationship
over the long-term, carefully select a panel of strong reinsurers. This gives the insurer a spread of
security, and from the long-term relationship, the expectation of stability of cover and pricing.

A2 Requirements for an international reinsurance market

There are a number of factors that allow the successful development of an ‘ideal’ international centre for
reinsurance. In his book International Insurance and Reinsurance Centres of the Future, Eric Herve-Bazin
listed the requirements that a successful international centre would need and these are summarised as
follows.

A2A Political stability
Reinsurance is a long-term product. Both buyers and sellers of the product want to be sure that the
Reinsurance is a
market will not change out of all recognition in the future. A concern would be that a government might long-term product
want to impose trading restrictions or even nationalise the entire industry.

A2B Geographical location

For an international reinsurance market to be successful, it must have access not only to its own internal
insurance markets but also to any neighbouring foreign insurance markets. With the development of
information technology, instantaneous electronic communication and widespread access to the internet,
territorial location has – to some extent – reduced in importance. Some major writers of reinsurance are
increasingly taking into consideration the attractiveness of a jurisdiction’s tax regime in deciding where Reference copy for CII Face to Face Training
to be domiciled.

Consider this…
In this respect, consider the advantages that London has compared to, say, Beijing.

A2C Quality transport system
The market must be easily accessible by foreign insurers, including good air links to other countries and
reasonable internal travel arrangements available within the city in which the market operates.

A2D Developed communication systems
Communication systems have become more vital with the development of the internet. A considerable
amount of reinsurance business is transacted using telecommunication lines and links need to be
secure and readily available to ensure business success.

A2E Highly qualified personnel
There must be a pool of specialised staff available to service the industry; this means the underwriters
Must be a pool of
as well as the support staff, such as claims and accounting personnel. This allows easy entry into the specialised staff Chapter
market for new reinsurers who can purchase staff from the existing pool of talent. available to service
the industry 9
A2F Office space at competitive prices

The cost of office space in the central business district of a city can sometimes be prohibitive, if
available at all, and this has in the past prevented the development of some markets. However, with the
use of information technology the impact of these costs can be marginalised.
Be aware
Some reinsurers and brokers have outsourced some of their back-office requirements from the London Market to
provincial locations, sometimes overseas, because of the reduced cost of staff and office space. Nevertheless, most
regard a head office presence in the heart of its chosen market as essential.