Ogden-hit reinsurers may seek clawback from cedants

Reinsurers forced to increase their reserves in the wake of recent changes to the Ogden formula in the UK—the discount rate used for personal injury claims in the UK—could look to pass these costs on to their cedants by increasing rates on some lines of business, Mark O’Riordan, group reinsurance director at Ecclesiastical, told Monte Carlo Today.

The buyer for the insurer, which specialises in heritage, charity, education, real estate and faith insurance, is seeking a smooth and stable renewal this year with no surprises. Since Ecclesiastical is relatively unaffected by changes to the Ogden rate, O’Riordan said he will be looking to differentiate the insurer from its peers and avoid any hikes.

“The effect in the market of the Ogden rate change will be interesting. We do not write motor business and withdrew from the commercial care sector some years ago, so we are not affected to the same degree as others, but I suspect some reinsurers will be looking to charge more as a result of this.

“There will be a market reaction and we will do our best to opt out of any generic increases on the basis of the unique characteristics of our portfolio in that we have limited exposure to catastrophic bodily injury occupations,” O’Riordan said.

The so-called Ogden effect is something of an anomaly amid wider market conditions that point to continued softening, albeit at a slower pace.

“We are expecting a continuation of the softening we have seen in recent years, although we wait to see the impact of the ongoing hurricane season on the global market,” O’Riordan said.

“We been speaking to our reinsurers and key partners throughout the year and we like a no-surprise approach based around long-term relationships and continuity. Reinsurance is fundamental to our strategy. We have had a very stable structure for several years and we continue to develop those relationships.”

He stressed that the consistency of Ecclesiastical’s message to the market means that he is open to benefiting from any rate decreases that might be available in the market, but this is not his priority in the renewals.

He noted that too much pressure on reinsurers’ margins can also pose risks to cedants. “We would not walk away from modest reductions but we also watch the performance of our reinsurers closely. We want them to have healthy and sustainable business models too.”

O’Riordan is open to the idea of working with new reinsurers—but again this is not a priority for the business.

“We will talk to potential partners, especially if they can work with us across our global operations in the UK, Ireland, Australia and Canada. It would be a limited number though.

“We are not by any means looking to take anyone off our panel but we want to ensure we have the breadth of panel for the best possible structure,” he said.

The one factor that could trigger changes to Ecclesiastical’s panel is consolidation between reinsurers. “If some of our partners were to merge, we would have to examine that concentration risk and monitor our appetite closely,” O’Riordan said.

“If that happens, there are reinsurers waiting in the wings who we would speak to.”

Ecclesiastical is unique in the sense that a charitable aspect is central to what it does. Last year, it reached a target of donating £50 million to charity; now the target is to donate a further £100 million, which it hopes to achieve through targeted profitable growth.

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