UnipolRe’s new capital management tool to empower buyers
UnipolRe has tapped into a gap in the market by developing a new capital management tool designed to empower buyers, as the firm’s Simon Wigzell explains to Baden-Baden Today.
A new capital management tool launched by UnipolRe, designed to empower reinsurance managers and buyers by helping them understand what effect their buying strategies will have on the internal capital models and overall risk profiles of their companies, taps into a gap in the market for such a product, according to the executive team behind its development.
“The tool is extremely interactive, allowing reinsurance managers to ‘test’ numerous scenarios and different buying strategies.”
Simon Wigzell, underwriting manager of UnipolRe, explained that the reinsurer identified a space in the market in terms of capital management tools that encompass the gross and net solvency capital ratio for non-life risk. He explained that while insurers are well serviced in lines of business such as property-cat excess-of-loss in terms of being able to demonstrate the gross and net capital impact, the global capital requirement should also take into account the correlation between other lines of business.
“This is where there is a gap,” Wigzell said. “UnipolRe has always sought to bring added value to the relationship it has with a buyer and has developed a tried and tested capital solution tool by leveraging the experience of Unipol Group.”
Smart Capital Management Solutions (SCMS) has been developed in recognition of the growing importance of capital optimisation within companies, especially since Solvency II came into force, and the increasing complexity of capital management strategies.
Capital optimisation is an increasingly important equation for insurers. Too much capital can mean that the company is perceived as not being efficient in the way it’s being managed, diluting the returns for the stakeholders; too little is equally risky and overexposes stakeholders and policyholders to potential insolvency.
Wigzell explained that the tool is extremely interactive, allowing reinsurance managers to ‘test’ numerous scenarios and different buying strategies, fine-tuning them to understand the levels of capital relief achieved under Solvency II (in particular when considering the Standard Formula). The tool will indicate the effect these have on the capital efficiency of the company versus the cost of the reinsurance programme.
He added that SCMS covers all of the main lines of business and calculates the solvency capital requirements under the Standard Formula. It covers most risks including: non-life risk (without the lapse component), cat risk, premium reserve risk and the peril line of business.
For these perils, SCMS can measure: the ceded premium for quota share, excess-of-loss and stop loss treaties (the ceded premium calculation takes into account multiple lines of business [LoBs], multiple perils and the sequence by which different treaties are applied to the same peril/LoB); the effect of treaties to the Net Solvency Capital requirements; and the variation of the loss ratio and standard deviation to the line of business and at peril level.
“The user-friendly programme allows reinsurance managers to select different perils and different types of reinsurance—quota share or excess-of-loss, for example—and input different scenarios for how much reinsurance they might buy,” Wigzell explained.
“The system is design to give an indicative cost of that coverage, allowing the user to run through various scenarios quickly and easily, including the nature and cost of reinstatements and complex multiperil coverages. It will also reflect what effect increased diversification may have on capital efficiency.”
Bespoke setup
Simone Zollia, reinsurance capital manager of UnipolRe, who was instrumental in building the system, added that reinsurance managers can set up the programme with certain parameters and information unique to their own organisations.
“They can start testing how different reinsurance-buying strategies will affect their company’s capital efficiency versus the cost of the reinsurance programme.
“The user can run through unlimited scenarios to get a deep understanding of what effect their strategy will have on the company’s overall internal capital models and overall risk profile of their companies.
“It facilitates an informed dialogue between the reinsurance buyer and other parties with vested interests such as the risk managers, commercial managers and chief financial officer,” Zollia explained.
Marc Guy Victor Sordoni, the chief executive of UnipolRe, added that capital optimisation is an increasingly important equation for insurers.
“The tool has been well received by clients so far and we anticipate it will help us form very meaningful relationships with our clients going forward. It is another thing that sets us apart,” he said.
Simon Wigzell is the underwriting manager of UnipolRe. He can be contacted at: simon.wigzell@unipolre.com
More of today's news from Baden-Baden
More cedants seek reinsurance to curb earnings volatility: SCOR
Where is consolidation taking the sector, asks GC panel
NewRe seeks non-Europe P&C growth
Swiss Re prepares for future growth markets in Europe
Mapfre Re to expand range & remit
Use of blockchain may overcome trust issues
Give MGA owners skin in the game: Citadel
Axis Re: growth in Asia & Lloyd’s
Europe a challenging environment for small reinsurers
UnipolRe’s new capital management tool to empower buyers
Ed embraces insurtech to put specialist products on line
Euler Hermes anticipates a stable renewal
Reinsurance is now an execution market: PartnerRe
Higher interest rates are no silver bullet
Fear over jobs may turn marine rates: Sompo
Insurers offering M&A insurance more than triple
Aon unveils details of new units
Open source platforms will drive insurtech forward: BMS
A good routine based on trust: Baden-Baden attendees
Parametric bonds the best option for the protection gap
