ORIGINAL PUBLICATION HERE
Trustees are a vital component of reinsurance, and choosing the right one can be the difference between a smooth experience or a sticky one, as Robert Quinn of Wilmington Trust explains to Bermuda:Re+ILS.
In the world of highly regulated and complex reinsurance business, reinsurance trustees don’t get much limelight (until commencement of the deal, when the trustee is critical). But don’t let their low-profile demeanour diminish their significance. Trustees are a vital component of the transaction, and choosing the right one can be the difference
between a seamless and smooth experience or a sticky and slow one.
Robert Quinn, product leader for insurance collateral solutions at Wilmington Trust, has over the past 18 years seen the good, bad, and everything in between when it comes to providing trustee services, as he relates.
Let’s start with the basics. What is the true cost of a trust?
Many people consider the “costs” of a trust to be those that are listed explicitly in a fee schedule presented by the trustee. However, there is room for trustees to be competitive on this front. Unlike many types of capital markets transactions (where service providers are being pressured to lower their fees), many trustees are actually increasing their rates.
In the competitive business of reinsurance trust work, this may seem counterintuitive. Similar to many items today, where it seems as though the size of the item gets smaller while the cost goes higher, many trustees’ fees are going higher as the service offerings seem to be shrinking. Of course, this is problematic, but this is not the only “cost” involved.
I submit that the true cost of a trust is defined by more than the dollars. The time you spend as a grantor (seller of reinsurance) or a beneficiary (buyer of reinsurance) of a reinsurance trust must be carefully considered. Overly arduous onboarding processes, lack of responsiveness by the trustee, and continuous legal to-and-fro by the trustee—these are all costs, and often dear ones indeed.
Most of these costs can be eliminated by a quality trustee that has pre-established efficient account setup processes and understands how to avoid administrative pitfalls.
Why is the client/account onboarding process such a pivotal piece of the trustee experience?
The answer is simple. Some trustees understand the nature of the reinsurance trust business better than others. Note, that there is a difference between understanding the business and understanding the business driving the need for a reinsurance trust. Some banks apply bank-wide standards to cover all products in all situations.
Other institutions, such as Wilmington Trust, have a clear understanding of what the actual need is for a reinsurance trust. This simple streamlining of the onboarding process makes a tremendous difference. Adept trustees ask the questions that truly relate to the business at hand. This efficient and streamlined process, where Wilmington Trust is concerned, comes from our team working together exclusively on insurance-related collateral accounts for more than 16 years, and counting.
Navigating a trust through legal approval can be challenging. How much to-and-fro is acceptable and to be expected?
This issue comes up a lot. Many grantors and beneficiaries in the industry simply accept their trustees’ approval process with numerous steps as part of the normal course of account setup. And in some situations, this happens. But for a trustee that truly understands the implications of a trust agreement, as well as what the grantor and beneficiary are trying to accomplish, manoeuvring back and forth between the legal team should be minimal.
Most reinsurance trust agreements are substantially similar, with slight nuances. A good trustee picks up on the subtle distinctions immediately. Further, the trustee will clearly understand the implications of the differences and be able to communicate effectively to their in-house counsel. Most of the time, the variations are inconsequential to the trustee, but once in a while they are worthy of notice. It is the solid trustee who knows the difference and knows what to do.
Most corporate trust groups (where insurance trustees generally reside) have legal teams within their respective banks. These teams specialise in (overall) trustee legalities. However, very few of them specialise in reinsurance trust legalities. This is why it is essential that the reinsurance trust team be able to explain the language, the situation, and the implications of the differences. Without expertise from the reinsurance trustee personnel, the legal comments from internal counsel risk being off-point and could cause unnecessary delays.
The solution that the insurance collateral solutions team at Wilmington Trust has devised to help solve delay issues related to internal counsel is to retain outside counsel with tremendous reinsurance trust expertise. In the rare event that our relationship managers need advice, we simply place a call. Outside counsel looks at the situation and generally has answers for us—and in turn, the client—quickly.
If there was one aspect to look for in a quality trustee what would it be?
The number one reason I have found that clients switch trustees is lack of responsiveness. Simply stated, the clients don’t get answers when they need them and become understandably frustrated. This happens more than one would think despite the fact that being a trustee is inherently a service relationship.
Responsiveness can be measured by timeliness of response as much as by quality of response. Are you getting answers that don’t really resolve the issue? A knowledgeable trustee will be able to answer questions and resolve concerns quickly so that the client can move on to bigger and more important issues, like binding deals. Are you waiting for long periods of time for any sort of response? Is approval of a trust agreement taking more time than you really have?
Some rules of thumb for measuring quality responsiveness:
It should not take more than a couple of days to receive either “approval” of a trust agreement submitted to a trustee or comments to the same;
It should not take more than a couple of days, once onboarding information has been submitted, to have the account setup complete and an account number established; and
It should not take more than a day to receive a response to an email or phone call.
A trustee that is organised, thoughtful, and diligent will fulfil these timelines.
In summary, my sources tell me that many reinsurance trustees are thrusting a considerable amount of cost (as defined above) upon their respective clients. This need not be the case. A reinsurance trustee that understands the business driving the need for reinsurance trusts will be able to minimise costs in all of their forms. ν
This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service or as a determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situations, and particular needs. This article is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought.
These services are provided by Wilmington Trust, NA.
Wilmington Trust is a registered service mark. Wilmington Trust Corporation is a wholly owned subsidiary of M&T Bank Corporation. Wilmington Trust Company, operating in Delaware only, Wilmington Trust, NA, M&T Bank and certain other affiliates, provide various fiduciary and non-fiduciary services, including trustee, custodial, agency, investment management and other services. International corporate and institutional services are offered through Wilmington Trust Corporation’s international affiliates. Loans, credit cards, retail and business deposits, and other business and personal banking services and products are offered by M&T Bank, member FDIC.
Robert Quinn is vice president and product leader for insurance collateral solutions at Wilmington Trust, NA. He can be contacted at: