Reinsurance cheap and capital efficient – JLT

Marine reinsurance is currently available at such a low price that buying reinsurance cover makes sense even though reserves and/or equity are at a high level, says broker JLT in its review of 2016.

JLT noted that most clubs bought reinsurance to protect their retention before pooling, and to support the provision of coverage extensions and additional P&I-related products (such as charterers’ liability). It said that “this reinsurance is so cheaply available in the current market that it arguably represents the most cost-effective capital for the clubs. Any club looking dispassionately at the facts is likely to conclude it simply doesn’t make economic sense to buy less reinsurance.”

Simon Sampson, senior member of JLT Re, noted that the IG places “one of the market’s largest reinsurance programmes, protecting the pooling system and supporting the clubs’ ability to offer high limits of cover on competitive terms”.

Most clubs also buy additional reinsurance to enable them to offer non-poolable extensions of cover. The extra reinsurance can also protect against spikes in claims retained before pooling, or unexpected aggregation of those claims.

Sampson saw little prospect of the currently soft marine reinsurance market hardening in the near term, with little evidence of major losses. The impact of Hurricane Matthew in October had been “at the margins”. What recent losses there have been have hit the energy sector, rather than marine.

However, for the medium term there are indications that a change in reinsurance market conditions could be on the horizon, via a potential conflation of macroeconomic factors, reserving policy and capital inflows.

The main argument of JLT Re’s September 2016 publication “Reinsurance: The Price is Right” ( is that reinsurance as a form of capital has never been better value, and JLT Re does not expect that to change in 2017.

“We are not alone in identifying longer-term trends in the reinsurance markets that could herald the end of the current soft phase of the market cycle, and there has already been some tightening of catastrophe reinsurance capacity, but I will be surprised if what is presented to club members in early 2017 is not pretty much a repeat of what they saw last year,” Sampson concluded.