Reinsurance Underwriting also Means Risk Management at Endurance

“We need information that can only be gained directly from our clients,” said Hans-Joachim Guenther, Chief Underwriting officer of Endurance Specialty Holdings for Europe and the Asia-Pacific region.

In an interview at the Reinsurance Rendezvous he gave some of the reasons as to how a reinsurer, that’s about to celebrate its 10th birthday, has grown from a startup (part of the “class of 2001”] to one with nearly $9 billion in assets and $2.67 billion in shareholders’ equity.

Although it has recently diversified into specialty lines from its U.S. and Bermuda platforms, reinsurance remains Endurance’s sole operational focus in Europe and Asia, Guenther’s territory. However, he explained, getting that business and servicing the needs of Endurance’s clients involves more than treaties and renewals. “We take a multi-line approach,” he said; “we partner with our clients, because we need information that can only be gained from the client directly.”

That approach doesn’t mean that Endurance rarely deals with reinsurance brokers; much of its business continues to be placed by brokers. But it underlines the company’s dedication and resolve to seek out, and to try to understand, a given client’s particular requirements on a deeper level.

“By entering into direct relationships with our clients we gain insights for their risk management [needs], their types [lines] of business and their markets,”Guenther said. He added that all of the insights then go into “underwriting and claims management,” which reflects each client’s specific business needs. At this point it becomes the cedants’ decision as to what coverage they need or want in a reinsurance treaty, but it is a more informed decision than might otherwise be the case.

This approach is an integral part of Endurance’s strategy, to capitalize on its smaller size, relative to larger reinsurers. “We’re smaller, so we can operate faster,” Guenther said. “We’re more nimble, and therefore have more flexibility [in assessing a client’s business and reinsurance needs], so we can act more quickly.”

Endurance has essentially changed what could be a liability – its smaller size – into an asset. Its underwriters can analyze and make decisions on new products, policy wordings, etc. more rapidly than larger competitors, as there aren’t as many layers of management to go through before a decision is reached. This approach combines basic underwriting with a strong dose of risk management.

The combination has become more and more necessary, as reinsurance underwriters, like Guenther and his team, work in an increasingly complex business. He describes the industry’s current environment as one of “micro-cycles,” i.e. the catastrophes in Japan, Australia and New Zealand may have raised prices in those regions, but, as a number of others in the industry have also observed, they have so far had a very limited effect on prices elsewhere. This is usually attributed to the fact that reinsurers still have a surplus of capital.

However, it’s an underwriter’s job to try to balance all of that, and end up with a policy that reflects the values it contains. That alone “doesn’t drive price increases,” Guenther said; “more fundamental changes, do.” One of these is increased demand, and Guenther expects that January renewals will be “more favorable,” especially given the current “economic uncertainties.

Model changes, such as the one introduced by Risk Management Solutions, also affect demand, as more reinsurance coverage may be needed in anticipation of higher insured losses in certain areas. Endurance’s use of models covers a wide range. They use those produced by the major suppliers, but they also create their own internal models, as part of their dedication to learning about their client’s needs.

“They’re all needed,” Guenther said. “In the end it depends upon the line of business, how we use our own models, and how we work with others.” In that sense he agreed with the aphorism that underwriting “is part science and part art.”