Paul Summers, GC Fac’s head of international, details how fac brokers should demonstrate their value beyond a transaction.
What are the main drivers of fac purchasing currently?
There really isn’t a single rationale or factor driving what is currently being purchased. Of course, we have clients who are repositioning
portfolios, seeking less volatility on certain lines or using facultative reinsurance as a mechanism to grow their position on single-risk business. The blend of different attitudes and approaches keeps life interesting!
If we had to pinpoint a single area which has evolved significantly in recent times, I would highlight hybrid products. We have invested significantly in developing our infrastructure and now have a compelling, diversified suite of products.
Technology has been a major factor in our ability to evolve these products as we continue our journey towards providing a consultancy-based approach. So, whilst continuing to offer evolutionary transactional capabilities, we now combine that with efficient process – and MI-based systems bespoke to individual requirements.
Centralised purchasing has been the preferred option of major cedants in recent years, but there are indications that this situation is reversing. Has the perception of fac as a strategic tool changed?
Centralisation has had an impact on how some of the larger buyers manage their business.
I can only speak from our perspective, but we did not see an impact from reduced buying as a result, as we have tried to be at the forefront of helping clients embed new strategies. Our experience through that has been very positive, as it really has been a catalyst to broaden our products from an emphasis on transactional-based services to something much broader.
Centralisation certainly remains key to many of our clients who demand much greater control over, and line of sight of, their business. Certain companies have more autonomy or local influence than others, but at a time when management information and strategic partnerships are key we can only see this continuing to grow. Many clients have invested heavily in embedding a centralised process and that has been very effective for them in the main.
I don’t believe this has a negative influence on major fac accounts. There are just different factors which motivate a purchase. Some are opportunistic and some are strategic. I think brokers have generally tried to find ways to access new business and part of that is looking into different, less congested segments, such as middle market. For a broker it also adds balance to a business, as a book based on large single risk accounts can make for quite a volatile portfolio, so diversification from that is healthy.
With the current focus on ‘adding value’ to reinsurance brokerage, do you anticipate a greater shift towards portfolio/hybrid solutions?
I think the broking community has to be able to demonstrate their value beyond just a transaction. Being able to provide an advisory service, first class execution of transaction and now adding other components such as IT infrastructure, data analysis, modelling and claims solutions – to name just a few areas – provides a client with a truly all-encompassing service.
We take pride in that at Guy Carpenter and in our view, it is absolutely what we need to be able to do to remain relevant.
What’s GC Fac’s outlook on the use of fac facilities?
There has been a huge amount of progress in the area of fac facilities, as I have mentioned. Reinsurance markets have really got their heads around providing more seamless, automatic solutions that fit in the hybrid area between treaty and fac. For some time, there were certain restrictions facing markets which, with the use of data, we have been able to overcome.
For example, cat management could be a problem for some in terms of how capacity can be allocated on a proxy basis and in advance of a portfolio building in some cases. This has been overcome now through better use of technology and a greater understanding of how to structure the business. Each fac facility we manage for a cedant is different and that is why it is critical to have the range of capabilities needed to address the various nuances of each particular deal.
Having the ability to drill down into a portfolio is vital. We can now capture data specific to a client’s needs on every cession to a facility. Our clients choose what data they want to capture and we can bespoke the portal to deliver just that.
It’s a pretty powerful tool for a client who is looking to gain a better understanding of their portfolio at a very granular level. It actually can be a core component of an underwriting strategy and not solely a reinsurance-buying tool. This all leads back to our goal of adding value at an advisory level as well as on the product front.
And what are your ambitions with regard to the use of analytics in fac?
This has been a key area for us for some time and allows us to continually develop our product. In my opinion, the overlap between fac and treaty has never been greater, and a reinsurance broker today should have knowledge across each of the disciplines to be able to properly advise a client.
We work incredibly closely with our colleagues across Guy Carpenter to make sure that our understanding is holistic, spanning each area of the reinsurance business. This includes how we best use analytics to continually improve our capabilities and to optimise our product design.