Brokers are market experts. They live and breathe their markets and apply their unique expertise to help clients to get the best results. As modern technology revolutionizes the way humans connect – from social networks to programmatic trading – the need for their expertise navigating complex markets like reinsurance has never been greater. The history of broking Broking has always been about connecting the right client and counterparty. Historically, the hardest part of making a deal was finding the people who wanted to trade.

Insurance is protection. When the reinsurance market fails, risk isn’t transferred and, in the worst case, people are left exposed – market failures undermine the very reason that insurance exists. 2022 was such a market failure. We discuss the underlying economics and the lessons the industry must learn – that a modern market mechanic with robust price discovery is critical – so it doesn’t happen again. 2022 was one of the most challenging reinsurance markets in decades.

Reinsuring a risk or treaty is never contemplated in isolation. Every decision to transfer risk is made considering the overall portfolios of both the insurer ceding the risk and the reinsurer taking it on. Most reinsurers prefer to take on a diverse slice of a cedent’s risk, and most cedents need reinsurance across their entire portfolio. Since our goal at Tremor is to improve the allocation of risk – not just the syndication of individual treaties but the allocation across programs as well – we are excited to announce two additions to the Tremor platform: Multiplace determines prices and allocations for multiple programs simultaneously while automatically managing cross-treaty concerns.

Consider this true story of a ceded re buyer who stepped into a new role for a time: [A ceded re buyer] spent X years in the role, meeting reinsurers in all the usual venues and negotiating reinsurance contracts. He shifted to [another role] for about 10 years, and then returned to the buyer’s chair. When he returned, he came back to a contract that had barely changed from the ones he negotiated a decade prior.

Tremor Technologies, Inc., the leading online reinsurance pricing and placing platform, reports a strong correlation between the likelihood of a successful allocation and the number of points in a reinsurer’s supply curve suggesting that reinsurers who provide richer supply curves are more likely to hit their target. In effect, rich supply curves as part of the anonymized aggregate supply that the cedent sees are more likely to be realistic and influence the cedent’s final pricing, leading to a successful allocation for the reinsurer.

Supply curves are fascinating – they capture reinsurers’ unique strategies and risk appetites in a way that only Tremor’s modern market tech and confidentiality rules can. How do reinsurers use them in practice? In this post, we analyze real supply curves and find a wide variety of curves and a wide variety of appetites, with one particularly interesting finding: based on our estimation, the reinsurers who put more effort into their curves are more likely to get the allocations that they want.

The current renewal season has been one of the most challenging in decades. With many cedents struggling to find the capacity they need and many reinsurers waiting to see what the rest of the market does, it is easy to feel like the market has stalled. It doesn’t need to be this way – with a modern market design and proper incentives, placements go from contract to coverage in a fraction of the time.

Reinsurers are price takers in the firm order terms (FOT) process. The cedent sets pricing and then solicits authorizations from reinsurers – while coverage terms may be negotiated, prices are held firm. Even when reinsurers are invited to quote before terms are set, final pricing is driven largely by broker models and advice. Pure price-taking is a compromise in any market. It simplifies the process but limits the breadth of ways that buyers and sellers can come to terms.

Tremor was an invited panelist at Trading Risk New York 2022 - ILS (Re)silience: a New Horizon conference. We enjoyed participating on our panel, “Insuring the technology leap: can risk transfer keep up?” We discussed how Tremor’s unique market technology offers comprehensive and transparent price discovery that satisfies everyone’s requirements at the same time, why that’s important and how it is very different from the traditional intermediated market. We also discussed our view on how efficient markets can both mitigate hard/soft market cycles and how efficient markets can help close the protection gap using technology as well as how the broker role will evolve into managing bidding technologies to integrate into Tremor to secure best execution for their clients.