Empowering reinsurance buyers on capital optimisation
As capital optimisation becomes ever more important to insurers, reinsurers can benefit from a new platform being developed by UnipolRe designed to empower reinsurance buyers, Simon Wigzell, the firm’s underwriting manager, explains to Baden-Baden Today.
A new platform being developed by UnipolRe, the Ireland-based reinsurer owned by Unipol Group in Italy, will allow reinsurance buyers to gain a better handle on what effect adjustments they make to their buying strategies will have on the capital and overall risk profile of their companies.
Simon Wigzell, underwriting manager of UnipolRe, explains that the solution, available in the first quarter of 2018, is being developed by the reinsurer because it recognises the growing importance of capital optimisation within companies, especially since Solvency II came into force.
“UnipolRe wants to create and share value with its partners by focusing on their specific and emerging needs, and this is an example of our service-driven approach,” Wigzell says.
The tool is completely secure—the application will be installed in-house and UnipolRe will give onsite support—and allows a buyer to look into its own data and explore the effect of different buying strategies and the levels of capital relief achieved, and the effect these have on the capital efficiency of the company.
“It will allow reinsurance departments to interface with internal risk management better and play around with different risk management structures,” Wigzell says.
“It will help them determine what types of reinsurance structures are the best fit for the company. At the moment the dynamic is often the reverse, with group risk management formulating the capital efficiency of the reinsurance. We hope to reverse this dynamic and allow the reinsurance department to analyse the effect on the result and the effect on the capital and help them to contribute towards the risk management.”
Wigzell says that Unipol group has developed great expertise in this area by developing its own partial internal model and, in particular, how to manage reinsurance in the internal model and in the standard model under specific parameters.
UnipolRe can also support companies using it by providing other forms of advice on how to manage their capital better and deal with the regulators in relation to Solvency II. For instance, he says, it can advise on how much and what type of information to supply to a regulator.
“Too little can cause problems, but so can too much,” he says.
He adds that developing an internal model is not always the best option for smaller insurers. Again, UnipolRe can help. “A partial internal model creates efficiency but can be very expensive in terms of investment but the efficiency can also be achieved with the Solvency II standard formula,” he says.
This tool also has the potential to change the dynamic with insurers between the risk management department, the chief financial officer and the reinsurance buyers.
“We are empowering them to be able to make better decisions and better interact with those other departments,” Wigzell says.
He stresses that more than ever, capital optimisation essential to insurers. Too much can mean that the company is not efficient in the way it’s being managed, diluting the returns for the stakeholders; too little is risky and overexposes stakeholders and policyholders to potential insolvency.
UnipolRe believes that reinsurance is a valid tool to achieve the targets of the commercial, reinsurance and risk management departments, and its solution will support communication and comprehension from all points of view.
Solvency II has been a major stimulus for companies to look at the way they manage their capital, but many smaller insurers are struggling to get to grips with its requirements and need help from their reinsurance partners.
“We speak with companies that need to raise capital or are struggling to find enough; we also see companies with too much capital—some mutuals for instance,” Wigzell says. “That can be equally inefficient.”
He adds that bigger companies with more complex portfolios can often benefit from developing an internal model, as can some insurers in very niche or specialist lines. “In those cases they might benefit, but it is not the case for all,” he says.
Wigzell stresses that with low interest rates and low inflation it becomes crucial, especially for stakeholders, to focus attention on capital management. Efficient capital solutions are now a key part of the overall strategy of insurers. Capital optimisation is a major driver of the overall business model and all business units and executive teams must ensure that it is embedded within the strategic focus of the company.
Such solutions represent a unique opportunity to structure reinsurance using a more measurable approach, he concludes.
Simon Wigzell is the underwriting manager of UnipolRe. He can be contacted at: simon.wigzell@unipolre.com
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