Insurers use reinsurance to lay off risk, free up capital and manage earnings, with the ultimate goal of maximizing the value of every dollar applied to risk. The flexibility afforded by the reinsurance transaction allows insurers to write more policies, enter or withdraw from markets — ultimately feeding growth in revenue, earnings and market capitalization. While it is possible for insurers to deal directly with reinsurers, many choose to use a reinsurance broker. This intermediary provides services that an insurer may not have in-house. Representing the interests of the insurer, the reinsurance broker facilitates access to capital, provides catastrophe modeling services and plays a deep advisory role on areas ranging from risk and capital management to identifying and pursuing opportunities for growth.
Despite the fact that the broker is focused solely on the cedent, the relationship can also benefit reinsurers. The capabilities and discipline that a broker brings to a reinsurance transaction can result in better risk management. The quality of the business assumed tends to be higher when a reinsurance broker is involved, which means reinsurers gain a better understanding of what is in their portfolios and how to deploy their capital.
Though historically focused on the reinsurance transaction itself, the role of the reinsurance broker evolves continually. Transaction execution remains fundamental to the service they provide to insurers, but an increasingly complex risk environment has made supporting advisory services crucial — from market security evaluation to Enterprise Risk Management (ERM) to the use of capital markets to transfer insurance risks directly to investors. As the nature of risk management changes, the reinsurance broker will be out in front, identifying the opportunities and developing the tools that will help insurers make the most of their capital.