Bermuda-based property catastrophe reinsurer IPC Re has detected a client-driven shift in how brokers are remunerated for their services.

IPC, in announcing first quarter earnings this week of $43.9 million, said three of its sizeable accounts in the period opted out of paying brokers a percentage-based commission structure for a fee payment scheme.

Although CEO James Bryce said three cases did not necessarily a trend make, a fee-based remuneration structure for brokers placing multi-million dollar business could be the way of the future.

He pointed out to that paying brokers a fee instead of a flat commission ? especially when it comes to working with clients that have large risks requiring sophisticated cover ? might be more realistic for both the client and the broker as it recognises the broad services provided from expert advisory services, to modelling to dynamic financial analysis.

Insurance and reinsurance brokers have traditionally been paid on a commission basis for placing business ? a cost usually paid by the re/insurer getting the business but worked into the final premium payment by the client. Under a fee-based structure, Mr. Bryce said the remuneration schedule recognised the broader role brokers now played. What was once simply an intermediary role by the broker now often included advisory services, which may even extend to interaction with rating agencies in various jurisdictions.

Speaking with investment analysts on a first quarter earnings call, Mr. Bryce said: "We did have three major programmes with major spends go to fees. When you are looking at something in the area of a $150 million to $200 million spend, a client is not willing to spend ten percent brokerage on that.

"The normal brokerage is ten percent on excess of loss, $10 to $15 million is a lot of brokerage. The value added is definitely there, but for $10 to $15 million, it could be more appropriate to be done on a fee basis."

He said a change in how brokers were compensated was not a direct result of US regulatory scrutiny of compensation structures between re/insurers and brokers.

"It is just the way of the world, it has been evolving that way over the last few years. Some of the brokers prefer it that way: They have built up capability and want to get paid for services. It provides an income stream. In the past, you placed your business and that was that." Mr. Bryce pointed out that particularly on long-tail business, which can have a multi-year duration, it is very difficult to justify a one-year brokerage payment for business that you might still be acting on ten years later. The three IPC clients were from different regions ? one in the US, one in the UK, and one in Australia ? showing this could be a global shift.

"This is something that took place in the first quarter, we have not seen that trend in the second quarter to date, but I believe as people are spending more on their cat premiums, they are looking at the cost benefit. What am I getting for my [multi-million dollar spend on brokerage? What is the broker adding in terms of value? It could make sense for companies to switch to fees and away from straight brokerage percentages.

"It was unique in the first quarter. It could increase going forward but it is really too early to say." Although a shift to clients paying brokers directly for their services cuts back on some of the premium income for the one getting the business, it would ultimately result in lower expenses.

"It is a bittersweet pill as it does cut back production but lowers expenses. My gross premium is less but my expense ratio is less..." Mr. Bryce said.

IPC reported on Tuesday night that its earnings were down 40 percent from $73.6 million during the same period a year ago.

In the first three months of the year, the company was impacted by storm activity in Europe, the Suncor energy loss in Canada, and also revised its estimates from claims from the devastating Tsunami last Boxing Day in Asia.

During the fourth quarter, IPC reserved for an estimated $1 million in Tsunami claims but in the first quarter increased that to a 'top down' gross number of $9 million. "We felt it appropriate to revisit our contracts that had or could have exposure," IPC CFO John Weale said, adding that only Swiss Re's research unit Sigma had increased Tsunami loss estimates for the industry to $5 billion.