Detailed study of Europe’s independent carriers identifies which cedants are best for reinsurers
17th October 2022
In a highly competitive European reinsurance market gaining fundamentally profitable new clients is one key to successful growth.
Litmus’ research shows those can be found away from the better-known groups; as so can some very unprofitable cedants. Research is key.
Europe has a substantial cohort of independent cedants with material outwards reinsurance spend
We have identified nearly 80 independent* European cedants that spend over Euro 25m annually on their outwards cover. For their reinsurers, the whole account results from that cohort vary dramatically.
A wide range of outcomes for reinsurers
Even on a 5-year average basis Ceded Loss Ratios (CLRs) range from single digits to over 300%.
21 members of our cohort achieved 5-year averages of below 55% for their reinsurers, eight of which delivered below 40% outcomes. However, 25 gave their reinsurers 5-year average results of over 75%, nine delivering outcomes in excess of 90%.
A wide range of financial strength profiles
It’s not just the possibility of writing profitable lines that is important; the financial strength profile of cedants can also be a key consideration for reinsurers and brokers: from managing the risk of having clients who become insolvent to optimising the reinsurance solution the cedant needs. Yet most European cedants are unrated.
30 of the cohort have a sufficient data history with A.M. Best’s Financial Statement Global service for us to deploy our proprietary financial strength scoring and profiling application, LitmusQ, on them. LitmusQ generates financial scores out of 100, which we benchmark against the international rating scale.
Taking the cohort member’s size into consideration the benchmarked results range from ‘bb+’ to ‘a-‘. Ignoring size, the range is from ‘bbb’ to ‘aa+’.
The Power of Data
As can be seen, there are valuable insights that can be gained just from publicly available financial information.
To find out more, including our work on by-line outcomes, contact us on analytics@litmusanalysis.com for a call or meeting. We are also pleased to be returning to Baden-Baden this year and would be delighted to meet there.
Data Source: *The data for this study were sourced from AM Best’s Financial Suite – Solvency II. The selected cohort were those non-life companies for which 2021 SII data were available, which were not rated by AM Best nor identified by them as part of a larger insurance group, and which in 2020 ceded premiums in excess of €20 m to their reinsurers.
About Litmus Analysis
Litmus Analysis specialises in helping the insurance and reinsurance industry understand credit risk and the ratings agencies. Its main areas of work are Ratings Advisory (helping companies manage their relationships with the rating agencies), cedant analysis, insurer and reinsurer financial profiling and stress testing, market analysis, peer reviews & benchmarking and market security/counterparty credit management (including the InsurTech application LitmusQ).
The team of consultant analysts all have a rating agency and/or broker market security background and includes the former heads of S&P Ratings Europe (insurance), A.M. Best EMEA and A.M. Best Asia Pacific.
CONTACT
Email: analytics@litmusanalysis.com
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