Reinsurance Partnerships Hinge on Integrity

Reinsurance is a global industry, serving as the backbone of the insurance sector and influencing the stability of the broader financial market. The business environment is tough, with ever-tightening terms and regulatory demands. The business of buying and selling risk is not for the faint of heart.

That’s why integrity and partnership tend to rule the day. Reinsurers that rise to the top are those that are known for honoring commitments, hiring only the most trusted attorneys and insisting on compliance quality and precision when it comes to legal documents and audits. Partnering with advisors and institutions that know the reinsurance model and value service excellence, timeliness and accuracy is critical.

In 16 years serving reinsurance and insurance clients, we’ve observed the following hallmarks of great partnerships between reinsurers and financial institutions:

• Transparency about objectives and strategies, coupled with an utmost-good-faith approach to any challenges
• Flexibility to tailor terms and agreements to fit the assignment rather than one-size-fits-all products
• Autonomy of a local team that can move the ball forward without bureaucratic red tape
• Responsiveness to every call or email in a timely manner
• Agility to assemble agreements for a combination of collateral accounts, (e.g., using a letter of credit for one reinsurance fronting agreement and a Reg 114 Trust for another)

As a case study to demonstrate the complexity of these arrangements, we offer an example of a recent solution we created for a reinsurance client based in the Cayman Islands. This new client provides reinsurance for U.S. based primary insurance carriers (cedents) that focus on short-tail property and casualty lines of business.

Since the reinsurer isn’t domiciled domestically, it accepts Letters of Credit as collateral from its primary insurance carriers. Pinnacle’s team worked with internal and external specialists to underwrite a $75MM master credit facility for the purpose of issuing standby Letters of Credit for this reinsurance client. These are secured by trust assets of cash and marketable securities custodied in six individual accounts.

And finally, to ensure that a great financial services partnership continues to run smoothly after contracts and documents are signed, you’d want to survey:

• The bench strength of experienced fiduciary asset managers monitoring collateral to ensure it’s performing according to objectives and can be made liquid when needed.
• Their commitment to an ongoing, long-term relationship beyond the thrill of the deal, with regular touchpoints to assess results and discuss current, impending and future needs.

---