As insurance and risk become more complex, Acrisure Re’s Ben Canagaretna looks at how the relationship between distribution and capital is becoming closer and demand is growing for a more sophisticated service…
In the wake of Hurricane Katrina, a flood of capital came into the catastrophe insurance market looking to support underwriting risk. But since then, there has been disillusionment and a loss of appetite for catastrophe exposure.
The pain was the result of a disjunction between capital and a perceived accurate view of risk. Matching these twin aspects of the insurance process has always been a vital task and we believe our industry is evolving towards a more holistic service from (re)insurance broking.
The desire for a closer relationship between underwriting and capital is evident in the rise of the MGA, which offers a more direct interaction between underwriting and capital. MGAs currently account for about 8 percent of the insurance market in the US, having doubled in size over the last decade.
This trend is indicative of changing expectations, but it is more complex than simply a demand for shorter chains of intermediation. The boundaries between traditional distribution, traditional underwriting and traditional capital are blurring.
Building strategic services
As a broker with $30bn in premium through retail and wholesale and $1.5bn through MGAs, Acrisure Re has wide experience of the capital market and has built close relationships with large sophisticated capital providers. This has allowed us to develop a closer understanding of the risk appetites and expectations that are unique to each.
Developing that understanding creates a much closer alignment of risk and capital. As a form of vertical integration, it reduces costs, but also allows for a more intelligent service that delivers better outcomes for capital and secures the right partner for insurance clients.
“The boundaries between underwriting, distribution and capital cannot be dissolved, but they are evolving from being purely transactional to strategic”
Reinsurance broking has historically been largely focused on transactions. Its future, however, lies in a more sophisticated service – one of market intelligence and analysis, understanding the client and providing strategic advice to MGAs, syndicates and reinsurers, examining and advising on business plans and risk appetites, not just with an eye on the next transaction, but on the ongoing business strategy and legacy too.
At the same time, it requires a similar understanding of capital and building relationships with underwriting capital providers.
Fulfilling this role requires three things. The first is the access to and understanding of underwriting that comes with deep knowledge and experience in the insurance sector.
The second is the ability to articulate the view of risk that can give capital providers a range of possible outcomes and an understanding of both the downside and the risk-adjusted return. The third is to bring the advisory expertise that one might normally expect to find in a management consultancy or investment bank.
The key lies in understanding the aims, appetites and expectations of both capital providers and clients from all sides of the equation and finding the structure that solves for both parties.
The evolution of broking
The boundaries between underwriting, distribution and capital cannot be dissolved, but they are evolving from being purely transactional to strategic.
This is the aim of Acrisure Re Corporate Advisory and Solutions (ARCAS) – a team combining seasoned insurance professionals, experts in the legacy market, cutting-edge analytics and actuarial modelling and investment banking expertise. Since its formation early last year, ARCAS has forged several such strategic advisory relationships and our expectation is that ARCAS will represent around 10 percent of Acrisure Re’s group revenues over the next three to five years.
We believe we are a leader in this evolution, but we do not expect to be unique. The trend towards a more sophisticated form of intermediary service is essential. Insurance has long been an industry that operates as a string of transactions, but future success will depend on services with a strategic vision.
Ben Canagaretna is managing director corporate advisory and solutions at Acrisure Re