Regulatory developments and changes in the financial markets are putting increased emphasis on optimum use of the available capital.
Using our modelling tools (for further information click here) and market experience we can help insurance companies in definition of the optimum reinsurance strategy, which will reflect the given risk appetite and will be implemented via definition of appropriate risk metrics.
If relevant, this analysis also includes the definition of the optimum settlement strategy of annuity claims. This solution is based on simulation of the technical results and the related reduction in cost of capital under various reinsurance scenarios.
We often support clients in two different areas:
- Reinsurance optimization
- Analysis for IFRS 17
Main focus is on the determination of the optimal program given the defined criteria. In general there are two sets of criteria:
- Risk optimum (lowest required capital and premium)
- Commercial optimum (SCR, RoE, Profit,…) – rating and weighting, defined boundaries
Optimization follows then the following steps:
- Simulation of portfolio and claims
- Calculation of defined characteristics
- Optimal reinsurance considering insurance risk
- Acceptable list of reinsurance programs
- Optimal reinsurance considering calculated score based on all criteria
We may provide a visualization of alternatives and what if analysis (impact on expected profits, capital, etc.) for different reinsurance programs.
Further information about the tool can be found here or please contact us for further information about reinsurance sevices.
Analysis for IFRS 17
These services cover specific approaches for recognizing and measuring the reinsurance contracts in IFRS 17 reporting. Typical areas of interest to produce methodological opinion:
- Level of aggregation – consider various passive vs. active reinsurance, portfolios, countries, currencies, unbundling and combinations
- Contract boundaries – allowance for future business
- PAA eligibility – criteria-based assessment, inconsistency between direct and ceded business
- Risk adjustment – analysis of approaches and allocation,
- Investment component – premium deposits, fixed/profit commission, reinstatement premiums
- Mirroring - applicability criteria, discount curves, risk adjustment
- Review the wording of the reinsurance treaties and suggest changes to ensure that measurement and disclosure of this business is optimized
- PAA application, contract boundary, level of aggregation, inconsistency between direct and ceded business
- Loss recovery component - initial and subsequent measurement
We have developed many IFRS 17 tools, for further information see our calculation tools here (and filter IFRS17)
For further information please contact us.