The latest edition of Milliman Impact entitled “Reinsurance: Optimising your strategy” offers perspective on how insurers should approach their reinsurance options in light of changing market conditions.
Here’s an excerpt from the article:
Increasingly, insurers are seeking bespoke reinsurance solutions to address a range of issues, from dealing with property risk accumulations to protecting reserves or achieving capital efficiencies under Solvency II. There is also a wider emerging trend towards more innovative internal and external reinsurance mechanisms, and a growing business case to bring certain reinsurance purchasing functions in-house.
“Despite an increasing complexity of reinsurance mechanisms, there are a number of factors leading insurance companies to internalise their reinsurance strategies, underpinning a sound and efficient decision process in terms of reinsurance,” says Fabrice Taillieu, principal at Milliman in Paris….
With changing regulation, a shift to enterprise risk management by insurers, and the increasingly cross-border nature of insurance, a number of firms have sought innovative capital management and reinsurance frameworks to help enhance earnings and deliver on their corporate strategies.
Many of the large multinational insurance groups have now centralised their reinsurance purchasing, taking a more sophisticated and global approach. Typically, these groups use dedicated legal entities to more effectively manage risk and capital across the group through internal reinsurance agreements. They also use such entities to leverage their purchasing power, consolidating their reinsurance purchasing globally.
While these types of arrangements tend to be favoured by the large multinational insurers, there are ways in which other insurers can achieve many of the same advantages, according to Adam Senio, senior consultant at Milliman in Paris.
“There are now many options open to insurers looking to optimise their capital and reinsurance purchasing. More insurers are using internal and external reinsurance schemes to optimise and transfer capital at the group level,” he says.
For example, Milliman has worked with a number of European insurers, helping them take a more global approach to reinsurance and establish internal reinsurance mechanisms that cede portions of portfolios from local subsidiaries back to the parent company, highlights Senio.