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Reading the Market Map

February 17, 2022

As a reinsurer, one of the most valuable things you get when you use Tremor is post-transaction data – Tremor’s market map gives you a clear report of how all of the other reinsurers were pricing the risk and what the cedent chose to buy. Even the insights from a single transaction can be invaluable to you as you price other coverage during a busy renewal season.

For this article, we’ll use an example from one of our demos. The right pane of the results page, shown below, offers insights for each component of the coverage that was placed. In this case, we are looking at the placement of an excess-of-loss (XoL) layer, Layer 1, priced by rate-on-line (ROL); similar views are also available for the other layers in the tower.

Market Insights

The first things you notice are the final terms and total coverage placed. The cedent has elected to purchase $50M of limit, and will pay 17.74% ROL for the coverage. (Since Tremor uses concurrent terms, all reinsurers will be paid 17.74% ROL regardless of the price at which they authorize.) As a participant we would know that this is a $50M layer, so we know that the cedent has elected to buy a full fill on Tremor. This information is presented at the top of the section but is also labeled below in the market map, which is where we will find the most interesting insights.

The histogram in the background of the market map is where we start to see information that is truly unique to Tremor. This histogram shows every dollar of capacity that was authorized and bins it based on the price attached by the reinsurer. For example, the bin covering 14.91% to 15.36% contains about 6.5 gray squares, indicating that about $6.5M of capacity indicated a price between 14.91% and 15.36% ROL in total across all reinsurers. This data is much richer than what one gets in a traditional placement – Tremor’s histogram shows you best and final pricing authorized by everyone in the market. With this data, you now know how your pricing lines up against your competitors – if you were authorizing most of your capacity around 16%, you know you were competitive; if you were authorizing most of your capacity around 19%, you know you are currently pricing above most of your competition.

The blue line in the foreground of the market map illustrates the options that were available to the cedent, with green annotations indicating the coverage that was bound. When the cedent picks a price, all coverage authorized at or below the chosen price will be bound (unless certain constraints come into play). In this example, exactly $50M of coverage was authorized at or below 17.74%, so we see the blue line passing through the point ($50M, 17.74%). Another point on the blue line is ($32.26M, 16.86%), indicating that the cedent could have chosen instead to place only $32.26M on Tremor at a lower price of 16.86% ROL. The fact that the cedent did not do this tells you that the cedent was willing to pay 17.74% to fill its layer; had the cedent instead chosen to short-place at 16.86%, you would have known instead that the 17.74% price was believed to be too high. In a hardening (or softening) market, this data gives you concrete indications of the pricing that cedents are willing to accept. More generally, this data helps you spot year-over-year trends that can help you as you quote other programs.

In sum, the market map gives you unique views that can be invaluable to you as you quote and authorize on subsequent placements. Seeing that you are high or low relative to the market in November can help you calibrate as you quote and authorize in December. Seeing what the cedent chose to buy or not buy, even just for a single placement, gives you insights into the pricing cedents will seek. Many reinsurers are excited to use Tremor because of this uniquely transparent market data – if you would like to learn more, please reach out to us!