Patrick's Masterclass - Video n°2
(French & English subtitles avalaible directly on YouTube)
Hi everybody 👋
I am Patrick. Last time we have initiated a global view of our industry, looking first at figures, the client base, and their insurers. Today we pursue our quest with other players.
Let’s start! ⏬
Traditional Agents: have lost weight and power
To work exclusively with one insurance company on only one type of products does not match with the development of new efficient distribution channels.
They have to adapt their process and offer a larger range of products to survive.
MGA, MGU, MUA are blossoming
- The MGA market, supported by brokers, is estimated to write premiums of 70 Bns$ in US and soon 100 bns $.
- MGAs bring the skills for specialized risks. Well known underwriters more agile to work on their own rather than under constrained guide- lines and processes from cies get the support of financial investors, (re)insurance risk carriers to whom they transfer the risk totally or partially. They propose alternative solutions to clients unsatisfied with the traditional market (cover denied, high price…)
- One can wonder about end of the season: alignment of interest between underwriter and capital provider/risk carrier is far from certain. The blossoming might be an escape game out of the hard market with losses by the end for capital providers, and then a piteous retreat.
- Captive cies have diversified their mission becoming alternative trading risk carrier. Their number, size and weight has increased substantially.
- Family owned cies remain an important feature in Middle East, Southeast Asia. They have to face the same challenges. Some will be sold to corporate investors but well-run ones with wisely selected cooperations will grow further.
Thousands of brokers, small shops (with few exceptions) were active over the world :
- Dedicated to a specific type of product, clientele, geographical area, market.
- Depending on few individuals who besides their technical know-how hold exclusive confident personal relationships with few partners and clients.
- Networking, wining and dining is important.
- Tradition, long term relations prevail.
There was hardly any tender or so-called beauty contest between competing brokers.
Number of broking firms has reduced considerably with the top ten having a dominant market share for insurance and only top 3 and race to top 4 for reinsurance.
Their role has changed from placing a risk to a global financial service entity :
- They offer benchmarks, cat& risk modelling, differential financial analysis, advice for M&A, ART, legacy deals…
- “Loss prevention, risk advisory and underwriting services account for more than 50% of a global broker’s revenue” (source EY)
- This requires huge data bases analytics resources, teamwork for the beauty contests with competitors, organized on a regular basis as required by authorities and ERM.
- To stay in the race, (image course auto) high class resources and adequate financial size is required
Top broking firms have gained an increased role :
- They use the skills of thousands of employees reducing the role and might of individual brokers even though the fight for top talents is fierce.
- Are part of every think tank set up to face the challenges our rapidly changing world is facing and of potential solutions.
- They have gained ground at the cost of top reinsurers as global service providers despite not being risks carriers.
- 225 professional reinsurers, (129 from Western Europe) are sharing the market.
- MR, SR, larger than others, are recognized in most markets as “the leaders” parallel to 2 Lloyd’s leaders for London market. Their market share is however not that big %wise.
- Most of companies alive in 1975 have gone with the wind, taken over or put in run off: Employers Re, Frankona, Gerling Globale, HIR, M&G, NRG, Skandia International, Victory…
- MR and SR remain at the top but are not anymore, the leaders to be on any one program.
- New ones have been created by investors/states for economic or political reasons
Market concentration has been spectacular, but this trend has reversed recently due to :
- Development of domestic, regional reinsurers supported by their state(s)
- Supervisory authorities impose to reduce dependance on one or few big players.
- Policy from insurance companies: increase their negotiation power and flexibility, reduce dependency on few actors and test alternatives
- The concept did not exist, (re)insurance industry standing firm on traditional pillars
- They appeared in late eighties when insurance was hardly available for US casualty.
- They were bringing capacity and solutions alternative to insufficient traditional ones.
- They are mainly established in Bermuda but not only. World bank for instance is one of the ART players.
- Their market share is substantial: +/- 16% of the ceded reinsurance premium.
- They are a decisive part of our industry: capital and solutions providers.
- Initially expected to “disappear after a 1st big cat test,” they look now as “due to stay”, and a challenge for the future of traditional players
Bye for now 👋
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