Comment - Relationships are vital.

(From Reinsurance)

Byline: Henry Keeling, chief executive of reinsurance operations, XL Capital.

Most marriages can benefit from the services of a third-party counsellor from time-to-time and this is especially true in the sometimes-fraught relationship between insurers and their reinsurers. When the perennial debate over the use of brokers in the reinsurance market ignites, I am often quick to show support of my intermediary colleagues.

The findings of a recent sigma report into the subject, with the apt title of 'Love thy Middleman', provides some cheer that I am not alone in this view. What makes the report more interesting is that Swiss Re is a reinsurer that has traditionally been seen as "direct", rather than operating through brokers. Indications of the continuing change of tide for the sector are to be found in evidence that the broker market has been gaining ground at the expense of direct counterparts in the US.

If brokers are witnessing new found favour among traditional detractors, then their own efforts at reinventing themselves and refocusing services to match the requirements of a changing market are to be credited. The continuing trend away from proportional treaty reinsurance towards a more sophisticated excess-of-loss model has precipitated this to some extent, as has the wave of consolidation among reinsurers in recent years. While the broker's primary function was once syndication, lining up capacity is no longer the issue. Their approach is now one of a sniper rifle rather than a blunderbuss, with a keen focus on consultation, modelling and structuring in order to match precise products with appropriate appetites.

Arguably, this indicates a redundancy of their one-time core function but, in a wider sense, their raison d'etre remains the same - that of outsourced marketing of capacity, products and appetite. Without brokers, reinsurers would have to invest more heavily in their own marketing capabilities.

Likewise, insurers would have to invest in the modelling and structuring capability required to distribute risk in the most efficient manner. The net result would inevitably be an increase in premiums and a less ...