In the second episode of Gallagher Re's post-renewals podcast, host Charlie Thomas continues investigating January renewals and what difference brokers made in finding solutions for their clients. As special guests James Vickers, Ditte Dischars and more all noted, the keys are proactive communication and knowledge sharing from around the globe.
Charlie Thomas: Hello and welcome to this, the second episode in our inaugural post-renewals podcast, where we go beyond the headlines of rate movements, T & C tussles and retention levels and investigate the impact of the reinsurance broker in one of the toughest renewals in modern memory.
In our last episode, we determined that this round of renewals was characterized less by the availability of capacity, and more by a frustrating and late process, where consensus around terms and rates was challenging to obtain.
In this episode, I wanted to delve deeper into the difference that reinsurance brokers made to their clients at 1.1.
At Gallagher Re, we strive to be more personal, more connected and more collaborative as a reinsurance partner, and good communication lies at the heart of that. Our approach of communicating early and often was evident across the company.
Will Thompson, Head of UK and Ireland Non-Marine Treaty, kicks us off, and explains the importance of brokers developing a deep understanding of both clients' and reinsurers' priorities throughout the renewal process.
Will Thompson: It was even more critical than normal for brokers to understand the evolving appetite of reinsurers - not just who's growing or who's contracting, but what their specific pressure points were. Is it simply a question of price? Is it attachment? Are there some red lines in respect of areas of coverage? And I think when I look back on 1.1, this is an area where our communication amongst our brokers has been first rate, and speaks to the collaboration within Gallagher Re, whether it be intel sharing for a specific line of business in a particular geography, or whether it be leveraging the excellent work our carrier management team do in bringing to life how reinsurers are reacting in other geographies, to identify identical issues and challenges. We're able to equip our brokers with invaluable real time information...
I think the key is that the client needs to feel as though their broker has done all of the requisite due diligence, planning for every possible scenario, and is calm and focused.
CT: James Vickers, International Chair at Gallagher Re, also lauded the impact of our carrier management team, adding that being part of a global company was a clear advantage.
James Vickers: What we are very good at doing, and what was super helpful, is sharing on a global basis, the performance, particularly the quoting performance, and the firm orders that we're seeing in various different markets as we move around the world. We have a very efficient and effective carrier management group. That sharing of knowledge is phenomenally important. Because it not only gives our brokers confidence when talking to their clients, but allows them to explain to clients, who are living in their own world, what is going on in that broader scenario.
CT: Ditte Deschars, Regional Director and Head of Nordic at Gallagher Re, agreed that the brokers' global breadth was of huge benefit to clients when it came to understanding the realities on the ground.
Ditte Deschars: To be part of a global company, it was clearly an advantage because we have got so many regional teams around the world. And we are very well connected with each other. We have this habit of sharing experiences and ideas, which meant that when our clients were facing very different and new realities, we could easily now draw on experience of other teams in other parts of the world where they had experienced similar challenges in the past.
CT: James also highlighted the importance of being more proactive in those communications, and not simply relying on email interactions to get the job done.
JV: We were very insistent on getting our brokers to call the underwriters to follow up to make sure that our submission for our client was not at the bottom of the pile — was actually near the top of the pile. We also tried very hard to make sure that the submissions were with the firm orders, that we ticked all the boxes that the underwriters were looking for. We knew by then there were certain things they needed, depending on who they were. And we made sure that those were highlighted upfront. So the underwriter could tick those off — Right, they've done all these things — because if you didn't get over those first hurdles, you knew you were back to the bottom of the pile again, because the underwriter was going to have to refer it.
CT: It's worth remembering that this was, for many in the market, the first truly hard reinsurance market they had traded through. For many underwriters and brokers, they simply hadn't seen an environment like this before. And as Ditte Deschars noted, being able to demonstrate resilience as a broker in this fast-changing market was incredibly important. While the challenge was partly about managing expectations, it was also about not giving up.
DD: You had to think on your feet and constantly guide your clients. You were hitting walls, very often you were hitting walls, but the answer is not we've hit the wall, the answer is, we've hit this wall, these are now the various alternatives that we can consider. And it depended on what the client wanted — [for] some, it was increased retentions, or increased costs, but there were other alternatives that were better. And I think that was the core thing. And what the clients really appreciated by their brokers was to be helped and guided in this very difficult marketplace.
CT: Nick Forti, Global Head of Clients, highlighted the importance of really listening not just to our clients, but also the reinsurers, to truly understand their motivations and to help to broker the best outcome for all.
Nick Forti: I think this is the market where perhaps you want to do less talking, a little bit more listening, I think we've been doing a lot of listening to our clients, what really matters to them in a market where you need to sort of concede some trade-offs. I mean, like never before, you want to sort of have a good understanding of your clients' drivers, what motivates them, what really matters to them more than other stuff. And really, then is listening to reinsurers: what do they need to deploy their capital?
And with the feedback we got from our clients is that they were grateful, because we sort of prepared them for what was to come. We've been able to transfer that knowledge, whatever we heard from reinsurers during the conferences — we really tended to transfer to our clients that knowledge.
CT: As the early fog of the renewals dissipated, it became clear that brokers would need to be innovative to get certain placements home. Here's James Vickers again:
JV: Reinsurance provides two functions for clients. One is capital management. The other is volatility management. Reinsurers were really not prepared to continue to provide very low level cover, which had been very useful for a number of clients. So they've had to increase their retentions, in some cases, unwillingly. In other cases, with some of the bigger companies, maybe when they looked at the terms and conditions they were offered for the renewals, they thought it's no longer economically sensible. The fact is, a number of them are retaining more and more volatility, which ultimately can only be solved by them changing their original underwriting. But there's a nasty lag between your reinsurance programme that kicks in at 1.1, and the time it takes you to change your underwriting. And there, we've been very innovative, sharing a lot of knowledge about different techniques and structures to help clients manage these increased retentions. Clients who've never had to think about this before, bringing them new types of product, well, not new types of products, new types of product for them, but products that we've sold very successfully in other markets to other clients, bringing new ideas, new thought processes, to be helpful.
CT: Structured reinsurance was one such idea, as Will Thompson explains.
WT: One thing that was talked about well in advance of renewal was the probable pressure that did indeed play out on sort of attachment levels. So yes, we've done our homework in terms of working out sort of, you know, which reinsurers were going to be comfortable at certain attachment points. But we'd also sort of lined up alternative products, alternative solutions, some of them in the structured reinsurance marketplace, ready to help clients sort of bridge the gap between that increase in retention that the traditional market was offering and the retention that they ideally wanted to sort of carry. And again, those type of deals can't be thrown together at the last minute. So that required some foresight, some planning, and having those sort of Plan B's in place in advance.
CT: Foresight and planning was also the driving force behind some of the sterling work produced by the Marine and Energy reinsurance brokers in this year's renewal, not least when it came to the challenge of securing coverages in regions affected by the ongoing Russia-Ukraine conflict. Here's Nick Croxford, Head of Marine and Energy at Gallagher Re, to explain more:
Nick Croxford: We feel our team is uniquely positioned to understand the issues that impact the primary market, and revise and adapt approaches to reinsurance accordingly. This is partly due to the breadth of the team we have here at Gallagher Re Marine and Energy, and also the type of client base we have. You know, we've always been regularly in the primary market with facultative solutions, we have the advantage of a very strong P&R reinsurance team who are at the forefront of key issues for the shipping industry. So we are directly involved in how our clients, and our clients' clients, are affected. And we communicate and share this knowledge very well. I think the Russia-Ukraine conflict has showcased that, and our clients have benefitted significantly.
I genuinely believe that, and the feedback we've received from some of the larger reinsurers, is that Gallagher Re has been the only, or certainly the most proactive, broker to reach out to the reinsurance market since the conflict started back in February/March, to try and gain some sort of clarity around their position on coverage. In particular, obviously around the war situation. And so we feel we have been better equipped. And we've been told we were better equipped than some of our competitors, to advise our clients well in advance in terms of sort of contract language, as well as marketing of reinsurance programmes. Now it's not nice as a broker giving bad news and saying your coverage is going to be restricted, and your event definition may be tighter than it was 12 months ago. But I think it's better to, you know—forewarned is forearmed. So, we were trying to give that from the very early days, back in the summer.
And that of course, that advice has often led to us providing you know, wholesale remarketing of programmes in order to find those reinsurers that will provide the coverage that is needed for bespoke portfolios that most of our clients have. So, we've been trying to get ahead of the curve, rather than wait and give bad news in December, when it's very difficult for ceded teams and, indeed, direct underwriters to react.
We've definitely shuffled around reinsurance panels, some reinsurers have stepped up, increased their portfolio, their profile. Others perhaps have dropped back a little bit. And others have just sat in a spot where they feel most comfortable. But we feel if you have the right strategy, if you're prepared to take a look, to step back, not just to accept what's happened in the past and adjust to the new circumstances, that there are opportunities to obtain the best coverage that you can.
Not every broker in our opinion has acted promptly, or with sufficient insight, or maybe even was hoping, that they put their head in the sand and hoped what materialised wasn't going to happen. But we had to address those fundamental issues, we spent a lot of time doing it. We spent a lot of time working as a team. We've got a very, very capable team, bringing together some the different strands of the business, not just Marine and Energy, our Political Violence team as well. We believe we offer the most innovative solutions. And you know, an example of that may well be down to, providing specific coverage for direct policies which still provide an element of our Russia, Ukraine, Belarus coverage, we found specific quality shares for them so they can continue to write that. And it's not a net write. So we've been as innovative as we can. And we're still looking for more solutions.
CT: Now that we are out of the other side of 1.1, one common query is to what extent we are experiencing a new norm when it comes to reinsurance renewals. Will consensus be easier to find at 1.4, 1.6, 1.7 and beyond?
Here's Head of Global Clients Nick Forti with his take.
NF: So that's an interesting question, and one that sort of dominates our thoughts at the moment in terms of was the market dislocated? Because we were looking for a clearing point? And if that's the question, I would say that the market has largely found the clearing point, what I mean by that there was lots of conversations around sort of retentions. Minimum rate on lines, retention as a function of minimum return periods. And I think some of those questions have been answered. And that was very much in the cat, property cat sphere.
There were also a number of questions around language and Terms and Conditions. Again, not just the property cat sphere, but mainly across some of the specialty lines: political violence and event definition, and so on and so forth. And those questions were particularly challenging because the market had not found a consensus yet. I would argue that that consensus has now been found, which is certainly, or should make it, easier, as far as the next renewals coming up.
One of the open questions will be trends. And again, it is very difficult as we sit here to look at sort of some of those trends. Will they accelerate? Will they flatline? We certainly see on some of the classes, a view being taken by reinsurers around inflation. Now, if you look at inflation, if you look at some of the projections, I think that that changes on a monthly basis. Will that lead to a slightly different approach, going into 1.4, or the June renewals? It is probably a little bit early to say. But I guess we are mildly positive around the fact that there's a bit more consensus reached across the market.
CT: And I'm giving the final thought to James Vickers:
JV: I think this is a new norm. And I think that for the renewals and the rest of the year, they have one big advantage, they can see what happened. After 1.1, expectations have been reset on all sides by all parties. And I don't think that we will get the similar sort of, slightly chaotic, last minute rush.
It also helps that at least half of all the renewals take place globally, at 1.1 in some markets in Europe, you know, it's almost 100%. So the workload for the renewals at 1.4, 1.6, 1.7, it is a little bit more spread out.
And I think what you'll see is that the buyers and the reinsurers will take the lessons from 1.1 and seek to apply them. And it will be easier to come to a landing. If I talk about some of these very difficult discussions around wording and coverage issues. Those are now settling down a little bit more to some sort of revised market standard.
As regards pricing, the market is not truly hard in the sense that everybody has been painted with the same brush. We saw the biggest rate increases on US nat cat, then European. But when we look at the rest of the world, yes, there were rate increases, but not at the same magnitude. So there will be that continued differentiation by client, by territory, by class of business. And as I said, hopefully now it's a little bit clearer what the rules of the game are. So that the renewal process is not going to be straightforward, but it will be smoother and better organised ultimately, than 1.1 was.
CT: That's all we've got time for in this episode. We'll be back after the 1.4 renewals, so make sure to hit subscribe on wherever you get your podcasts. Thanks for joining us, see you next time.