Experts warn of reinsurance market crunch

The motor trade specialist had been in trouble since before Christmas and the administrative axe fell as the industry returned to work in the New Year.

Earlier this month, Tradewise went into administration.

In a communication to brokers sent on 10 January and seen by Insurance Age, Tradewise said: “As you are all aware, Tradewise have been unable to bind New or Renewal business since 1 January 2022. There was a year left on the three-year deal with Berkshire Hathaway, although their Reinsurance protection on our book of business was arranged on an annual basis.

“Despite the six-month notice period in force with Berkshire Hathaway, we clearly cannot offer cover without the appropriate Reinsurance protection.

“Whilst we hoped that alternative capacity could have been found by now, sadly, at this time, it hasn’t been.

Choice
Gary Humphreys group underwriting director at Markerstudy Group, which has significant motor trade interest with The Taxi Insurer and recent acquisition Clegg Gifford, said it was “never nice” to see an insurance firm go into administration.

“They are a reasonable part of the motor trade market,” Humphreys stated.

“This reduces choice [for brokers] and increases the concentration of risk.

“However, the business is concentrated through brokers who have other motor trade facilities, so there shouldn’t be a lot of market detriment.”

He continued: “I think the motor trade market is pretty stable, and the people in it are churning out decent numbers.”

Buyers?
But he said the collapse could be an opportunity for Markerstudy: “We’d be looking to pick up some of those clients.”

He also revealed that Markerstudy had offered to buy the renewal book of Tradewise before Christmas.

“We offered to accommodate the renewal book but nothing has come from that yet. They were more keen on trying to find a buyer,” he noted.

He added: “Once it goes into administration, they have to get the best result for the creditors. There are a few parties who are interested.”

It is rumoured that these parties also include Aston Lark and Ardonagh Group.

The situation is “not ideal” for the broker space according to Humphreys due to the “limited number of markets” but, as previously mentioned, the remaining markets are stable, so brokers could be confident of placing the business elsewhere.

Sustainability
Motor trade specialist, Toby Clegg, CEO of Clegg Gifford, agreed that the market could sustain the loss of Tradewise. He revealed Clegg Gifford had already picked up some of the business and backed the view that the market was stable and able to absorb the loss of Tradewise as an entity.

“It was quite a long time in coming,” he said, “and in terms of the market, there are quite a few players albeit in a niche segment.

“It comes down to working alongside insurers that can meet the needs of the motor trade.”

First Underwriting boss, Tom Donachie, said the collapse would see “a lot of business coming back to the market, and it does create a problem for some brokers in the sense that they will have to remarket the business.”

Going forward, Clegg expected established players to support the sector and work with brokers in the space because it isn’t an area that is simple to move into without experience.

Clegg commented: “It isn’t an industry you can just enter with a jazzy portal. You need a holistic package, and you need specialist underwriters.”

He agreed that reinsurance could be a problem for smaller players: “You need scale and capital to make reinsurance work.”

For potential buyers of Tradewise, Clegg warned: “Getting new capital and reinsurance is going to be a devil of a job.”

Wider issues
Humphreys also flagged that the underwriting part of Tradewise wasn’t the main problem and pointed to reinsurance as a wider issue that may affect the sector.

“It is the reinsurance that is the problem for smaller operations,” Humphrey’s pointed out.

“Those that do not have decent scale could struggle to find reinsurance at affordable pricing.”

Donachie suggested that reinsurance is an ever-present issue.

“It is well publicized that they have been increasing for a host of reasons including the volatility of large losses and the cost of care.

“It’s a consideration for small, medium, and large insurers.”

Ongoing
Donachie added: “It is an ongoing issue across all products, not just motor. If there is a high propensity to large losses, it will always make things difficult.”

More positively, Clegg did not think the failure of Tradewise was symptomatic of wider problems in the motor trade arena.

“It is a one off and others have already got capacity lined up,” he stated.

Clegg suggested that the case reminded him of the collapse of Staveley Head in that both that business and Tradewise operated on a wholesale basis.

He commented: “The problem is that it is a wholesale book and reliant on the underlying brokers. Those brokers have already done their deals.”

Prizm Solutions is a broker that took out agency with Tradewise late last year. MD Peter Robinson said that, because the relationship was new, the collapse of Tradewise hasn’t caused major issues for his business.

But he was concerned that it could be part of a trend. He noted: “It is a genuine concern that other MGAs might have their capacity/reinsurance pulled, as MGAs (for a variety of reasons) are picking up ever bigger chunks of brokers business because composites are looking increasingly inwards, and our job is difficult enough without fewer markets to go to.”

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