Ceded Reinsurance Survey Results

The last 12 months have seen a dynamic reinsurance market where capacity and capital challenges have meant increased retention for cedants. This has resulted in a number of responses, including increased focus on gross underwriting, better data for portfolio management as well as an increased focus on the ceded reinsurance operations.

Our team at Deloitte has recently supported several organisations to define their transformation journey for ceded reinsurance operations. This survey has been issued to assess the extent to which this trend is prevalent across the wider market and understand the various transformation strategies being deployed in more depth.

Managing reputation in the market (e.g. mitigating the risk of misstatement), maximising the benefit of reinsurance (by minimising recovery leakage) and ensuring targeted and efficient coverage in a market of higher retention levels requires effective reinsurance management. Our survey shows these drivers have generated significant recent transformation spend in ceded reinsurance operations, focused on improving the benefits from data, processes and systems. However, delivering a successful transformation outcome is no small feat given the historic underinvestment in this area.

We can summarise the key the trends with the following observations:

• The trend towards more complex and innovative reinsurance arrangements looks set to continue, driven in part by hardening markets, as organisations seek to be more efficient with their purchasing and gain a competitive advantage. 79% of survey respondents indicated that they expect their reinsurance programmes to continue to increase in complexity in the short-term (i.e. in the next 2-3 years).
• Insurers struggle to capture and harness data effectively to drive insight and deliver efficiencies in operations. For ceded reinsurance operations this is exacerbated by lack of strategic data solutions and widespread use of legacy systems. 71% of respondents said that late data leads to manual activity, workarounds and inaccuracies and 57% said that they have no single source for the data they need, which exacerbates the issue.
• Insurers need to attract, develop and retain a pipeline of new reinsurance talent for the future. Many ceded reinsurance teams have experienced and specialist resources who are a rare commodity in the market and very difficult to replace. 63% of respondents with >$1bn CWP acknowledge they do not have the necessary talent within their team.

Many insurers are spending upwards of tens of millions of dollars transforming their ceded reinsurance operations. Those who have underestimated what is required or haven’t started should consider developing their case for transforming their strategic ceded reinsurance capability. According to our survey, the risk of misstatement and the desire to accelerate reporting timetables are currently the most important drivers for prioritising investment in ceded reinsurance transformation, but most have also realised that any investment in ceded reinsurance transformation pays for itself by helping to reduce recovery leakage, which is deemed prevalent in the market.