Facilities & Binding Authority contracts have historically been used to deliver products from the insurance markets, and in order to accommodate low premium, high volume business. That is still true today. However it is becoming evident that there are many more benefits to grouping business together in this way, including efficiency of transactions, leading to faster service, and more effective business models and margins.
The birth of a Facility for Faber to use to service Clients’ business, or a Client’s Binding Authority to give Clients underwriting authority on their book of business, begins with the successful placement of a single risk. Do the same thing again on another similar risk and the question arises, “can we do this again and again?”. If the answer is yes then there is an opportunity to deal with those placements in a Facility or other contract instrument.
The market in London, typically attracted to Binding Authority business, finds itself at a crossroads. Though in many cases driving very profitable attritional loss ratios, many contracts draw business from Catastrophe exposed areas. These contracts use vast amounts of aggregate capacity, putting a heavy demand on each Insurer to produce capital (needing adequate return) and reinsurance protection to be able to furnish reserves demanded by the regulatory authorities. Now, at what is hoped to be the very bottom of the soft cycle, rates have fallen to a level where even with the best of loss ratios the margin of profit left isn't always enough to fund the return requirements of the capital providers and the price of reinsurance.
Those regulatory authorities demand that each Insurer measure their exposure by using one or another approved model. The model used has for many insurers assumed a very pivotal factor in their Underwriting decisions, for some it has taken over. For Managing General Agents trading under Binding Authority Contracts today, they must be aware of how their business will be judged by the model.
Any MGA must therefore have an understanding of how the Underwriters have to move information through their organisations in order to achieve a positive decision. This includes: understand the model; produce business to the appetite of the model; understand the Underwriter’s constraints and needs; and produce data in content, form and timing that assists them. If an MGA does all these things, then dealing with the market becomes easier and contracts are able to be won with significant aggregate capacity.
The use of Information Technology allows Faber the opportunity to view a book of business or several books of business in different ways. The ability to analyse and deliver modelled reports has now become significant when dealing with existing and new markets in order to deliver this enhanced capacity to Coverholders.
The binder market in 2012 is going through a challenging and difficult market phase. Alongside modelling pressures, Underwriters are conscious that a shift in the market is potentially imminent, and signs are apparently appearing to confirm this.
We are uniquely placed to assist coverholders and MGAs. To-date within Faber, Placement Facilities & Binding Authority contracts have been mainly supported by business from North America, Australia and the UK in a variety of classes and product types including Property, Transportation, Liability and Accident & Health. We see a significant opportunity for growth for clients in these and other classes of business.
For more information please contact Terry Spicer (terry.spicer@faberglobal.com)