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The Intermediaries Speak

by ~ Joseph S. Sano (Email) (Web Site)

The fourth and final panel for the day, "The Intermediary's Perspective: Placement Trends, Contract Wordings, Disputes and Other Notable Developments," was a great way to close out this year's symposium and was well in keeping with the "Business Matters" theme. When a panel of this caliber speaks, insurance and reinsurance professionals listen. The noted intermediaries included John Chaplin, currently with Compass Reinsurance Consulting and formerly with Guy Carpenter, Matt Stanwood and John Dietz of JLT Towers Re, and Dave Macintosh of Aon Benfield. MReBA members Susan Hartnett of Sugarman, Rogers, Barshak & Cohen and Mike Mullins of Day Pitney rounded out the panel, with Ms. Hartnett moderating the discussion and Mr. Mullins adding valuable legal perspective. The discussion was amplified by cogent questions and comments from the audience.

The presentation began with an overview of the intermediary's role in accomplishing the traditional functions of reinsurance: finance, stability, and capacity. It was noted that over recent years, larger cedents have increasingly accessed the nontraditional reinsurance markets for catastrophe protection. While most of the traditional functions of reinsurance are still in play, catastrophe protection, or "CAT" cover, has become the modern focus.

The discussion then shifted to the relationship between the intermediary and the key stake holders for the purchase of reinsurance by cedents: CEOs/CFOs, and more recently CIOs, Chief Underwriters, and actuarial and claims management personnel. As the reinsurance purchase decisions have been broadened through the "C-Suite," the role of the intermediary has expanded to liaison with these individuals.

One panelist also noted that in his experience, responsibility for reinsurance purchasing decisions has shifted from the Chief Underwriter to the CFO as reinsurance has been considered more of a capital management mechanism. Consistent with this, one commentator suggested that alternative capital markets tend to approach reinsurance as more of a short-term investment opportunity rather than from the perspective of a more traditional reinsurer. The discussion touched on implications of this approach, including the potential impact of such an approach on payment and dispute-resolution issues.

The discussion then turned to CAT bonds, which have been made available by advances in modeling. It was observed that over the past several years, CAT bonds provided considerable new capacity and reduced the costs of traditional cover. However, there has been some evidence of CAT pricing beginning to bottom out despite the market being awash in capital as investors continue to seek better returns than are otherwise available in a low interest rate environment.

The presentation highlighted other new developments as well, touching on the area of cyber risk, among others. One panelist noted that some markets have been pulling back from cyber due to actuarial uncertainty, and predicted that coverage for this risk would likely be limited to quota share treaties with the reinsurer partnering with the cedent. Another commentator, on the other hand, remarked that the increased concerns of many insureds regarding cyber risk provided new and exciting opportunities for insurers and reinsurers, noting that capacity is available for this risk. Other developments discussed included the expansion of hours clauses in CAT covers (losses occurring within a specified number of hours after a storm, e.g., 72 or 96 hours) and Named Storm contractual limitations, and the challenges presented by such clauses.

Finally, the discussion touched on various legal questions that can arise with regard to the role of a reinsurance intermediary, for example, whether the intermediary should be viewed as the agent of the ceding company or the reinsurer, a question that can have important implications in the event the intermediary experiences financial trouble. It was noted that there seems to be a general consensus that the intermediary is the cedent's agent, consistent with the holding of the New Jersey federal court in the 1980 case In re Pritchard & Baird, Inc., 8 B.R. 265 (D. N.J. 1980), which found the intermediary to be the cedent's agent so that payments to the intermediary were not deemed to have been made to the reinsurer. However, reinsurance agreements frequently contain "intermediary clauses" stating that payments by a cedent to an intermediary will be deemed payment to the reinsurer (though in contrast, that payments by a reinsurer are deemed made only when actually received by the ceding company). Such clauses, it was noted, are typically enforced as written.

Mr. Sano is a partner at Prince Lobel Tye LLP. He may be reached at

The 2014 MReBA symposium presentations were for educational purposes only. Views expressed by panelists at the symposium were their own and did not represent the views of their respective companies, law firms, or clients, nor do they represent the views of Prince Lobel Tye LLP.

© 2014 Prince Lobel Tye LLP. All rights reserved.

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