BMS Re’s Chandler: Not every casualty QS deal “will have a three in front of it”

There is “not any floor or ceiling” on casualty quota share ceding commissions with reinsurers becoming increasingly discerning about how they deploy their capital, Pete Chandler, president and CEO of BMS’ US reinsurance arm, has commented.

Casualty and professional liability quota share ceding commissions are largely back in the 30 percent or more range due to underlying rate increases and the remedial work insurers have done on their books.

Speaking to The Insurer TV as part of #ReinsuranceMonth, Chandler said: “I am not trying to be contrarian but I’m not sure I would agree [ceding commissions] are changing. The market is incredibly smart and resilient and every deal has to stand on its own.

“It is certainly not a foregone conclusion that every deal will have a three in front of it from a ceding commission standpoint. But it never has been.”

Chandler noted that there were some “headline grabbers” last year with ceding commissions in the upper-mid 30s on casualty quota shares.

“Those caught a lot of folks by surprise. We haven’t seen that in our industry in a very long time,” he said.

Chandler added: “The market as it always does is correcting itself and being much more discerning. As always, the reinsurance underwriters are underwriting the insurance underwriters and they are going to deploy their capital behind those folks they think are best in class. And where it is warranted, they will absolutely get a ceding commission with a three in front of it.”

The executive said that with interest rates low, reinsurance underwriters have to be discerning about how they deploy their capital. He said that there is a greater focus on this than there has been for a while.

“I know some executives from the reinsurance underwriting community have elevated this as a topic for 1 January but to me it is always a topic for any renewal cycle,” he said.

“A transaction has to stand on its own and it is going to get the ceding commission it warrants. I don’t think there is any floor or ceiling in that realm but it all depends on the quality of the underwriting.”

BMS Re last month completed the acquisition of Trean Intermediaries as it continues to strengthen its US reinsurance broking business.

Trean Intermediaries was launched in 2013 as a joint venture with Trean Corporation and specialises in workers’ compensation, property and casualty, accident and health, personal auto, public entity and professional liability lines for insurer and MGA clients.

But Chandler – who was deputy CEO of JLT Re’s US reinsurance broking arm before joining BMS in 2019 – said that the US reinsurance broking market has fewer acquisition opportunities than elsewhere.

“I do believe that if you look solely on an absolute value basis in the US there are probably fewer opportunities than in the rest of the world, and that’s why as a global organisation BMS is constantly looking around the entire globe,” he said.

Arthur J Gallagher’s pending acquisition of Willis Re is set to increase the market share of the big three reinsurance brokers. Chandler said he agrees with TigerRisk CEO Rod Fox’s comments to The Insurer TV this month that there is a reinsurance broking oligopoly.

“Arguably it does sustain or maintain a big three and selfishly I don’t want to believe in that,” Chandler said of the Willis Re sale.

“I do see the strides and progress being made outside of the big three.”

The executive said the acquisition by Gallagher will create opportunities in the short term.

“The Willis Re/Gallagher relationship probably won’t finalise until later this year or early next year so it creates exponentially more opportunities for us to pursue business that perhaps was not available historically or was tied up with certain relationships. It also allows us to sit down with people who were intrigued and interested by the BMS story.

“In short, it creates competition and I think that’s the best outcome possible.”