Why Reinsurance Prices Are Wrong—and How to Fix Them

November 4, 2021 by L.S. Howard

Each reinsurance renewal season sees brokers feverishly chasing down the best premium prices in the market. Frequently, when the panel of reinsurers offer their submissions for a slice of treaty, the broker will discover that the treaty is oversubscribed and will have to go back to the markets to reduce each reinsurer’s commitment by a certain percentage, in a process called signing-down—but the price stays the same.

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During this price-discovery process, brokers do their best to get an indicative price of what the market will accept, but “every time a risk is oversubscribed, it means the broker has gotten the price wrong and the ceding company has paid too much; it’s like you’ve left money on the table—perhaps millions of dollars for a single treaty,” according to Sean Bourgeois, founder and chief executive officer of Tremor, the Boston-based technology firm.