Reinsurance Management - What creates value? Piers Maunder November 2007

Transcription

1 Reinsurance Management - What creates value? Piers Maunder November 2007 Finity Consulting Pty Limited 2007

2 Reinsurance Management Companies will be targeting reinsurance savings and alternatives to traditional reinsurance, which is currently widely seen as poor value Nick Johnson, Numis Securities

3 What Creates Value? Strategy Quality information and the ability to use it. Partner selection process Internal Consensus around reinsurance strategy. Understanding the external environment Efficient systems and procedures Internal controls

4 Reinsurance Strategy Complementary to the overall business strategy Chief internal and external communication document Internal Board, Operating Units etc External R/I Brokers, Reinsurers, Analysts, Auditors, Actuaries, Regulators etc Getting the right mix between Reinsurance capital and Pure capital a key component in capital management strategy.

5 Quality information Developing an Effective Reinsurance Solution demands High Quality information. Information and Fair Price are directly related Trusting your partners and sharing information Reinsurance calls for significant data inputs. Modeling Structuring Pricing A by-product of reinsurance is detailed portfolio analyses Critical to understanding your own business Critical in effective communication Critical for planning purposes

6 and Using it Examples of how value is added to your portfolio Risk Profiling Exposure modeling Adherence to Underwriting Guides Retention Analysis/DFA Test data integrity Analyse Modelled Outputs Review In-house and third party analyses generated from modelling outputs

7 Effective Partner Selection What do you need from a partner? Expertise Global Reach, worldwide knowledge Help with processes Reliability/Track Record

8 Choosing the Right Broker Do you need one? Differentiators Local/Global Knowledge Leverage Getting the Job done Modeling Understanding your Needs Specialist Expertise Do they have it? All offer similar Services

9 What to Look for in your Reinsurers Differentiation Security and Rating Licensing and Domicile Expertise Global Knowledge

10 Getting the best from your Partners Better Structure. The design of the programme is determined by: Risk Appetite Regulatory guidelines Cost Transparent Pricing: Exposure analysis Experience analysis Expertise based pricing Agreed Terms Difficult classes resolved

11 Building Consensus What is Reinsurance? A Source of Capital A necessary way to mitigate probability of ruin A useful underwriting tool. A shared understanding of the programme throughout the company will increase buy in and significantly improve the flow of information and thought.

12 External environment What is happening in the market place? Global Reinsurance Cycle Climate Change Debate Changing Regulatory Environment How do you find out what is happening? Sunrise Exchange Cover Note Insurance News Australia Brokers and reinsurers networks etc.

13 Alternative Forms of Reinsurance Capital Markets Sidecars Catastrophe Bonds Will they grow/reduce? Consolidation and Internal Captives

14 Reinsurance Systematic Approach to Reinsurance Management where value is added at each step Capital Management Strategy Reinsurance Program Portfolio Analysis Exposure Modelling Identify Needs Review Required Broker tender Reinsurer Evaluation Determine Placement Strategy and Identify Partners Structure Negotiate price/terms Implement Programme Targets/Budget Contract Certainty Systems Finalise Programme Regulatory Reqts.

15 Reinsurance Systems Process Review Review determination methodology for: Setting structure Limit (exposure modelling) Retention (cost of cession vs risk appetite, DFA) Generating Pricing Setting Budget Review Offer, acceptance and completion stages Review against REMS and update REMS as needed Document Reinsurance Arrangements for REMS Sign off on outcomes

16 Service Flowchart M ission Statem ent C orporate O bjectives C orporate Strategy D e fin itio n o f R is k R isk Appetite M anagem ent R eports E x p o s u re M o d e llin g Capital M anagem ent S t r a t e g y Assessing C apital N eeds (D FA and/or M C R t e s t in g ) Budget R einsurance P r o g r a m Investm ent S t r a t e g y Dividend P o lic y B usiness U n it P la n s R E M S Internal G overnance/r ules Tim elines/ Budget D ra ft & Is s u e R F P to Broker Panel Tender Y Tender N C r e d it R is k P o lic y R eview R esponses, com pare proposals Select R einsurance B r o k e r P o lic y L e v e l D a ta E x p o s u re R e p o r ts R isk & H azard Profiles Large claim s, net & gross experience D ra ft N e w C la u s e s P r o v id e In fo rm a tio n to B ro k e r D r a ft S lip D eterm ine Placem ent Strategy and Target outcom e with Broker Place the R einsurance Program m e Identify Q uoting m a r k e ts O btain Q uotes Firm O rders Approach other m a r k e ts B r o k e r In p u t Select R einsurer P a n e l Research em erging issues M onitor and Report on Progress/process R e v ie w C o n tr a c t G ap Analysis R e in s u re r P a n e l P ric in g In te rn a l P r ic in g A n a ly s e C a t M o d e llin g R e s u lts G e t Final Slip/ W o r d in g R eview against R EM S/M ER G e t B ro k e r P o s t Placem ent R e p o rt Determ ine R/I Needs by Line of Business/ Business U nit D e v e lo p C o s t A llo c a tio n / In te rn a l R einsurance Structures P r ic e P r o g ra m m e and Com ponent P a r ts Audit Price and structure on behalf of Business U nits C o n d u c t F u ll R e v ie w C o m p le te Reinsurance A rra n g e m en ts Statem ent C o m p le te R /I Section of FCR K E Y : S u b m itt a ilo re d R e p o rts to C lie n t in a tim e ly fa s h io n. Tasks that Finity will not currently perform C urrent C ore tasks perform ed by Finity Potential N ew tasks to be perform ed by Finity

17 Conclusion The Essential Creators of Value Are: A clearly developed and internally communicated reinsurance strategy An appropriate capital/reinsurance mix A broker that understands you and your business A reinsurer with the expertise and financial strength to support you A Robust Management Infrastructure - one where all the required tasks are identified and allocated to the people, or organisations, best suited to handle them effectively. Tightly controlled Review and Monitoring procedures.

18 This presentation has been prepared for the Finity Niche Insurer Conference held on 8 November Finity Consulting Pty Limited (ABN ) wishes it to be understood that opinions put forward herein are not necessarily those of Finity and Finity is not responsible for those opinions. The information presented at the conference was of a general nature and a reader of this presentation must seek their own independent advice before using it for any purpose.