CEA adds TigerRisk to trio of brokers. One to be assigned ILS markets

The California Earthquake Authority (CEA) has increased the number of reinsurance brokers it will use in future, adding TigerRisk Partners to a panel of three, one of which will be given ILS market placement responsibilities.

Reinsurance brokers Gallagher Re and Guy Carpenter are already working with the CEA, but at last week’s Governing Board meeting, the earthquake insurer opted to add TigerRisk Partners as a third.

These three reinsurance brokers will now handle the placement of traditional reinsurance and collateralized covers for the CEA, which as we explained yesterday totals over $7.32 billion of risk transfer, out of a total program size of almost $9.3 billion.

The remaining $1.97 billion of risk transfer comes from catastrophe bond market placements, for which the CEA used a combination of Swiss Re Capital Markets and Aon Securities for its most recent issuance.

Each of the three brokers of traditional and collateralized reinsurance will take on specific roles.

Gallagher Re will take on the role of Principal Intermediary, which means it will also provide additional analytical services, accept reinsurance premiums from the CEA to be disbursed to markets, provide reinsurance and capital market situation updates, and analyse reinsurers financial status, while also having a chance to offer additional value-add services too.

Guy Carpenter and TigerRisk Partners will each take on the role of an Associate Intermediary, to place business with reinsurers around the world and to provide insights and be an interface with markets.

While TigerRisk Partners has never worked with the CEA before, the insurer noted that it knows the team there well, and has worked with some of them at previous employers.

The broking responsibilities will now be split between the three successful reinsurance intermediaries.

All three will broke reinsurance business to non-Lloyd’s worldwide markets, but Guy Carpenter also has the responsibility of taking on Lloyd’s markets as well.

The worldwide reinsurance markets are set to be divided as follows:

Traditional reinsurers in Bermuda and the Caribbean;
Traditional reinsurer markets in the Americas, Europe, Asia, Australia and other worldwide locations;
Collateralized reinsurance and other non-traditional (alternative) reinsurance markets, including insurance-linked securities (ILS) funds and investors, such as pension or sovereign wealth investors, as well as hedge funds, insurer or reinsurer sidecars, and any other markets that are not traditional rated reinsurers.

The CEA said that as a general matter the worldwide markets will likely be divided between Gallagher Re, Guy Carpenter and TigerRisk Partners as per the above, with some exceptions.

Selecting who to take each responsibility will likely not be easy and exceptions are likely to be plentiful, given all reinsurance brokers tend to claim their key relationships.

The CEA also intends to keep the way it pays its reinsurance brokers efficient, with a maximum payment per year, rather than a typical broker percentage commission structure.

This is because of the “enormous amounts of limit” placed by the CEA each year, which would mean a reinsurance broker would be paid a significant sum if on a premium commission type basis.

After the RFQ it has been decided that an intermediary will be paid $4.125 million, with a maximum of $4.4 million after additional services rendered.

That’s an increase from the $2.8 million paid for the past seven years.

The intermediary contracts are on a five-year term, with two-year options for extension.

Also read: CEA’s risk transfer shrinks slightly, as cat bond cover declines.