Counterparty credit focus benefits mid-tier players

Greater concerns of counterparty credit risk driven by rating agencies and regulators will benefit mid-tier reinsurers as cedants rationalise their buying panels, according to Albert Benchimol, chief executive of AXIS Capital.

Speaking at the International Insurance Society’s annual conference in London yesterday (Tuesday June 24), Benchimol said that as cedants have been forced to invest more in conducting their own analysis of their business partners, they have also rationalised their panels.

The main losers in this process have been the smaller tier 3 players where it makes little sense to conduct a costly analysis for companies writing small lines and adding little value. Some have also reduced their allocation to the biggest reinsurers to avoid concentration risk.

“This process has, and will continue to be, a good thing for mid-tier players such as AXIS,” he said.

Denis Kessler, chief executive of SCOR, partly agreed, noting that this greater focus on counterparty credit risk has led to far more robust processes in the selection of reinsurers. But he believes the bigger players have benefitted too.

“It is very costly to do analysis of counterparties; if you work with 25 reinsurers, it makes no sense to be doing that on all of them. So cedants are tending to pick a smaller number of bigger reinsurers to work with. That is certainly benefitting us.”