Richard Clarkson, Senior Managing Director, Insurance Consulting and Technology, WTW
An integrated approach to decisions about portfolios, reinsurance, and capital made within a single decision framework provides insights that drive success, says WTW’s Richard Clarkson.
Buying reinsurance has become a complicated business. It used to be enough simply to fac out the big risks, grow the top line by ceding under proportional treaties, buy some XoL for peak perils, and watch your accumulations. No longer. As the market softens and exposures shift, with new perils emerging and pricing assumptions moving, it’s essential to carry out and sustain a critical analysis of all the moving parts.
Success can be measured against multiple metrics, individually or in combination. Total income, profitability, growth, combined ratio and return on capital are each common and perfectly valid measures. Unfortunately, though, changing one tends to shift the others, often in the wrong direction, and risk is fundamentally unpredictable.
By adopting an integrated approach to decisions about portfolios, reinsurance and capital within a single, augmented framework, it’s possible to optimise performance against chosen metrics. Bringing together third-party market knowledge, fine-tuned technology and enormous actuarial acumen drives business outcomes that meet strategic objectives.
The approach combines current market insights, advanced analytics and superior actuarial capabilities to deliver portfolio allocations, capital management and reinsurance optimisation that boost performance as desired.
Technology is an important part of the mix. Alongside catastrophe modelling tools adjusted and validated to inform and match each cedant’s view of risk, it’s necessary to deploy a proven capital model such as Igloo, which allows reinsurance buyers to assess and balance reinsurance buying and other forms of capital with potential liabilities to gain maximum capital efficiency.
By incorporating the insurer’s strategic business objectives into a finely tuned economic capital model, an augmented decision-making framework provides insights that help to drive optimal risk selection and pricing. Risk scoring and loss-trend detection are applied, fuelling what becomes a dynamic capital management process.
Risk scoring, selection and pricing are continuously adjusted to achieve maximum capital efficiency. Loss-trend detection and analysis driven by powerful AI agents add a further layer of insight to the framework.
None of this is accomplished outside the evaluation of human judgment and relationships, of course. The framework feeds on knowledge of cyclical trends and their direction, live insights into market pricing and specific reinsurers’ appetites, and – critically – the relationships necessary to deliver the capacity required to meet the requirements of decisions augmented by the framework.
Outcomes in the underwriting stage impact outwards reinsurance purchasing and further capital optimisation choices. They feed back into the augmented decision framework to support continuous outperformance.
It’s a proven approach to meeting business priorities, whether they’re for the top line, profitability, return on capital, combined ratio or a combination of those desirable achievements.
Willis Re has linked with WTW’s Insurance Consulting and Technology practice to deliver augmented decision-making for insurers worldwide. It’s a powerful combination of advisory services integrated with leading-edge technology, underpinned by unparalleled analytical capability. It makes reinsurance very much easier.
