Designing a Risk Transfer Test

November 20, 2012

Accounting – local or IFRS - and prudential – current or Solvency II - frameworks establish a principle-based recognition of the effectiveness of the risk transfer operated by a reinsurance contract.

Insurance companies themselves must design the actual test for each of these frameworks. Now, sometimes common contractual features (variable premium rate, profit participation with loss forward,…) can make the formal proof of risk transfer complex for a specific treaty.

An analysis of different risk transfer tests suggests insurance companies should build a general process of risk transfer testing that be both qualitative and quantitative, robust, resource-efficient and compliant.

From Solo Reinsurance Functions to a Group Reinsurance Function

November 21, 2012

The group supervision in Solvency II context emphasizes the importance of a consolidated view of risk, capital and newly-established governance functions. It also increases the visibility and need for management of insurance risk mitigation activity at group level.

The Reinsurance function at group level meets this need. But the breadth of its role, between facilitator in circulating best practices across the group and manager of an internal reinsurance carrier, is a key organisational and structural decision to the insurance group.

Reinsurance issues in the boardroom

November 21, 2012

The Board of the insurance company has to approve the reinsurance strategy in many jurisdictions. Many questions about reinsurance are up to the Board in its oversight role. These challenge its ability to comprehend a quite technical subject matter and go beyond figures to crystallise a strategy in a volatile environment.

Is the organisation of the reinsurance function put in place by Management adequate to identify and manage reinsurance issues?  Is the reporting pack about reinsurance submitted to the Board appropriate for decision-taking ? Is the strategic dependence to reinsurance controlled ? Are important or complex transactions identified and actually discussed by the Board ?

A taxonomy of reinsurance issues in the boardroom may be helpful.

Updating your Reinsurance Strategy, in Solvency II context

November 19, 2012

Regulatory project Solvency II influences the reinsurance strategy of many insurance companies.

Admittedly current regulation in many jurisdictions already requires the approval by the Board of a written reinsurance strategy. Besides, the definition of this strategy goes beyond the sole consideration of regulatory optimisation.

However, new frameworks of governance and risk management as well as valuation of direct and ceded liability, solvency capital and eligible equity items incite insurers to adjust their reinsurance strategy.