Striking the balance: Data and expertise in reinsurance renewals

BMS Re’s Simon Woodage on the importance of accurate risk assessment during reinsurance renewals.

Data is crucial to the reinsurance industry at all times, but particularly during renewal seasons. It provides clarity, informs decisions and can be leveraged for better options.

Unfortunately, data is often misused to deliver what’s expected instead of harnessing its full potential.

Cedants and reinsurers alike have the opportunity to make the most of their data and set themselves apart in its application, making better-informed decisions during this upcoming renewal season.

Going beyond the basics

Accurate risk assessment is at the heart of reinsurance renewal. Data isn't just for modelling risk; it guides risk accumulation management and shapes parameters like premiums, probable maximum losses, as well as actual losses – and their development.

Our collective responsibility goes beyond simply processing the data we’re given. We must validate its accuracy and develop a deep understanding of what it represents. This is a complex process, and at BMS, it starts long before the beginning of any renewal season. Comprehensive command of clients’ data is the only way to truly identify their positive differentiators, properly anticipate questions from actuaries and/or cat modellers, and ensure that there isn’t a mismatch between reinsurance sought, reinsurance purchased and their underlying exposures.

History shows that over-relying on catastrophe models often leads to the mismatch identified above. Often models do not account for certain unmodelled perils – for example, Storm Uri, which hit Texas in the winter of 2021, caught the industry by surprise and resulted in substantial losses.

Navigating additional pitfalls

Recent catastrophic losses in Louisiana highlighted the risks of inadequately valuing primary portfolios using insurance to value. In addition, data is often used to fixate on a single point within a distribution of many likely outcomes rather than considering the full array of loss outcomes.

To enrich raw risk data, engaging with cedants and brokers is invaluable. Providing further insight into loss outcomes, reducing the impact of outsized losses and successfully managing risk for better outcomes.

In addition, today’s economic environment dictates that it is important to understand inflation's impact on portfolios. For example, supply chain complexities and macroeconomics drive inflation, increasing costs. When reporting exposure data to reinsurers, cedants must ensure that inflationary context is clearly communicated, to avoid additional costs as a result of standard adjustments for uncertainty which are added by underwriters.

Benefiting through partnership

Best-in-class reinsurers will seek a true partnership with their clients, enhancing trading relationships through transparency, and the sharing of their expertise and knowledge for everyone’s benefit.

Having a deep understanding of our clients on an individual basis is something we are proud of at BMS Re. We work closely with cedants to ensure reinsurers have the most accurate data not only at renewal, but over the course of the contract period. We model, synthesise and analyse our clients’ data at regular intervals so that they are able to make the most educated and informed decisions at renewal. Our expert brokers, catastrophe analysts and actuaries are always prepared to assist our clients with structuring and pricing methodologies. Elsewhere, we have in-house meteorological expertise to help clients truly understand climate-driven risk. Having this full understanding of data allows for efficient workflows, reducing miscommunication and misunderstanding.

At BMS Re we focus on providing relevant and bespoke insight to our clients. Our team of more than 300 colleagues around the world use data to deliver answers, not to generate outputs. This ensures that clients can manage risk, evaluate reinsurer underwriting perspectives and communicate clearly with reinsurers as we go into this renewal period and beyond, together.

Simon Woodage is divisional director, P&C at BMS Re