Was there ever such a thing as a pure reinsurer and if so were they especially prized?
Our story on PartnerRe's decision to discontinue its wholesale insurance business (see page 3) has posed the above philosophical questions.
When Exor came to crash Axis' party last year, it made much of the fact that in direct contrast to its rival bidder, it intended to keep PartnerRe pure and chaste in all things reinsurance, thus avoiding competition with its clients.
At the time some on the news desk pointed out that Exor's statements had failed to note PartnerRe's nascent forays into wholesale and retail insurance and questioned what it might do with them were it successful in its bid.
But let's get back to the question.
Back when Adam and Eve wandered the Garden of Eden did their insurers only buy cover from a chorus of specialist reinsurers that sold reinsurance and reinsurance only? Did it take a bite of the insurance apple to cast these reinsurers out into the world, suddenly ashamed of their pure unadulterated nakedness and ready to throw on the fig leaves of wholesale, fac and specialty?
If such innocent and pure reinsurers ever existed did their insurer customers value these pure-play angels more highly than the other outcasts that also did a bit of specialty insurance on the side?
Pure reinsurers avoid direct competition with their customers and this is obviously convenient at an entry level. But the problem with these reinsurers is that they only have one source or premium income and this can make them less desirable as counterparties in interesting ways.
For instance, an insurer may be happy that a pure reinsurer is not going behind its back to siphon off customers, but at the same time it also knows that that same reinsurer is almost certainly supporting all its major competitors. After all how else is the pure reinsurer to make a living if not through reinsuring far and wide?
Perhaps for a conventional single-territory general insurer a better reinsurance counterparty would be a reinsurer that can afford to pick and choose a little more because it supplements its income in global surplus and specialty markets in which the insurer customer doesn't care to play?
The real problem is that the long insurance and reinsurance value chain is becoming more and more compressed. Capital keeps finding new ways of getting to the underlying risk and the real added value links in the chain.
These days we're simply in the global risk transfer business and the game is applying capital and expertise to solve original clients' problems. In this fast-globalising environment all parties must always choose their counterparties carefully.
Today's loyal supporter can quickly become tomorrow's competitor.
The effects are being felt in broking too - for it is all wholesalers that are under strain, not just reinsurers.
No, it's clear that there never was an age of innocence - only an expanding world of experience.
PS - In recent years, The Insurance Insider has published its digital weekly edition on Monday at around 6:30pm London time. It has then published its print monthly on the first Tuesday of the month in the afternoon. It is one of those quirks that develop in organisations as they grow organically over time - and which it makes sense to eliminate once you start thinking about them logically.
So, from next week onwards, both the digital and print issues
will be published at 1pm London time on a Tuesday - allowing
Londoners to pick up the issue emails in their lunch break and New
Yorkers at the start of their work day.