Consolidating Reinsurance Towers to Gain Efficiencies

In addition to raising capacity and lowering reinsurance prices, the influx of new capacity from
the capital markets is driving more flexible reinsurance terms and efficiencies that primary
insurers and their brokers have been seeking for years.

Multiyear programs, once a rarity, are now becoming commonplace, and private placements with bespoke terms and conditions that address specific client needs are gaining traction. Another trend being ushered in by the flood of new money is the shift of reinsurance buyers to consolidate multiple reinsurance towers into one contract.

Insurers have long complained that the use of multiple towers instead of just one is inefficient and results in a poor return on their investment. For example, an insurer may buy separate programs for individual regions with each program having its own limit. In a portfolio of five programs, the chances of making a reinsurance recovery is lower than when consolidating all of the programs into one.

Besides the additional administrative issues involved with managing multiple programs (including determining appropriate retentions and limits for each), a ceding company is better able to address its risk tolerance levels by managing its placements on a more cohesive basis.