Markel: Quota share covers likely to shrink in rising market

Enterprise stop-loss and catastrophe reinsurance are two key tools for carriers navigating a hardening market, while quota share demand is likely to shrink, Markel chief risk officer Julia Chu said during a fireside chat with Insurance Insider.

Especially during the Covid pandemic, reinsurance is integral to protecting Markel’s balance sheet, she said.

“Enterprise cover that looks more like a stop-loss and property cat reinsurance – so those two are a must have,” Chu said.

Meanwhile, proportional quota share placements fit more in the “nice to have”, rather than essential category.

“This is a great rate environment,” she said. “With the rate changes going up, we likely to retain more, so gradually you’re seeing less of proportional reinsurance.”

ILWs, on the other hand, play a side role as an opportunistic cover, particularly for arbitrage, Chu said.

Asked about the state of play of the reinsurance market, Chu said that for Markel, “this is not exactly a hard market for reinsurance, but we’re going into a hardening phase”.

“We have not had difficulty to fulfil placements. There’s no shortage of supply or reinsurance capacity. We were able to finish our placements on time or early, but then again, I cannot say that’s the same experience for everybody else,” she said.

Shifting focus, when asked how recent broker consolidation such as that of JLT Marsh and the pending Aon-Willis merger is affecting the market, Chu said the moves bring pluses and minuses.

On the one hand, a consolidated brokerage can become a “powerhouse” in terms of controlling the distribution system and take a larger overall cut of premium as commission and fees, leaving carriers with less capital to offer cover and ultimately lower profits, she said.

On the other hand, larger brokers can invest in analytical capabilities that can support clients, Chu said.

However, for Markel, a reinsurance good broker will be able to anticipate growth and objectives for returns, as well as understand the risks.

“The phrase I would use is a ‘trusted advisor’,” Chu said, adding that an ideal broker would be in a position to offer advice on problem solving in areas not limited to reinsurance, such as modelling, increasing access to capital or different ways of hedging risk.

“It may be climate risk – is that really insurable? Or pandemic – is that really (re)insurable? We have to start thinking outside the box,” Chu said.

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