I was reading an article on managing reinsurance risks and found a few points that I would like to share.
BUSINESS NATURE OF REINSURER
Reinsurers are able to accept some of the riskiest business ever underwritten using prudent risk management frameworks, and a high degree of risk diversification by spreading its portfolio on an international basis across different lines of business and by assuming a large number of independent risks. Below are key risks faced by reinsurers to avoid insolvency.
LEVEL OF DIVERSIFICATION
1.The more diverse a reinsurers’ portfolio gets, the less volatile the reinsurer’s financial performance. Stable financial performance allows reinsurers to accept more risks with less concern from its shareholders and regulators on capital buffer requirements.
2. General reinsurers’ risks exposures & diversification factors can be categorized via locations, value and types of catastrophe. For life reinsurers, their risks exposures are based on death or illness of the various policyholders’ segmentation & demographic.
ASSET-LIABILITY MANAGEMENT
1. Insurers’ turn-around-time for claims management are governed by regulators. Reinsurers are not governed by regulators to pay claims in a stipulated time frame. This allows reinsurers more time to manage their investments within the time-lag between premium collected and claims payables.
2. Investment decisions are influenced by the type of insurance portfolios and contractual obligations with insurers
3. Therefore reinsurers are required practice effective liquidity management seeking a balance between appropriate investment horizons with significant yields and ensuring that claims and financial obligations are paid on time.
CAPITAL MANAGEMENT
1. In the event of catastrophes or unexpected losses, capital is the last buffer against insolvency. Reinsurers are required to manage challenges from investors & rating agencies in regards to capital management.
2. Rating agencies focus on adequacy of capital for claims and debt payments and rates each reinsurer accordingly. Reinsurers are also required to provide attractive investment returns to its shareholders by maximizing its capital investments.
3. There are frameworks for reinsurer’s capital management which will be covered in subsequent posts.
4. Reinsurers can address inadequate capital positions via injection of additional capital or through transfer of risks to third parties. This can be done via retrocessions which involve cessions to other reinsurers or Securities.
VIEWS
1. Capital positions is crucial for reinsurers and history have shown numerous reinsurers brought down to its knees in the event of catastrophes with government intervention to honour claims payable to insured.
2. The management of reinsurers’s risk, capital and management processes is highly dependent on the regulatory, accounting standards, and market environment of the reinsurer’s country origin and differs from one to another.
3. Link to the Article as below:-
http://www.cover.co.za/reinsurance/managing-risk-in-reinsurance
Reinsurers are able to accept some of the riskiest business ever underwritten using prudent risk management frameworks, and a high degree of risk diversification by spreading its portfolio on an international basis across different lines of business and by assuming a large number of independent risks. Below are key risks faced by reinsurers to avoid insolvency.
LEVEL OF DIVERSIFICATION
1.The more diverse a reinsurers’ portfolio gets, the less volatile the reinsurer’s financial performance. Stable financial performance allows reinsurers to accept more risks with less concern from its shareholders and regulators on capital buffer requirements.
2. General reinsurers’ risks exposures & diversification factors can be categorized via locations, value and types of catastrophe. For life reinsurers, their risks exposures are based on death or illness of the various policyholders’ segmentation & demographic.
ASSET-LIABILITY MANAGEMENT
1. Insurers’ turn-around-time for claims management are governed by regulators. Reinsurers are not governed by regulators to pay claims in a stipulated time frame. This allows reinsurers more time to manage their investments within the time-lag between premium collected and claims payables.
2. Investment decisions are influenced by the type of insurance portfolios and contractual obligations with insurers
3. Therefore reinsurers are required practice effective liquidity management seeking a balance between appropriate investment horizons with significant yields and ensuring that claims and financial obligations are paid on time.
CAPITAL MANAGEMENT
1. In the event of catastrophes or unexpected losses, capital is the last buffer against insolvency. Reinsurers are required to manage challenges from investors & rating agencies in regards to capital management.
2. Rating agencies focus on adequacy of capital for claims and debt payments and rates each reinsurer accordingly. Reinsurers are also required to provide attractive investment returns to its shareholders by maximizing its capital investments.
3. There are frameworks for reinsurer’s capital management which will be covered in subsequent posts.
4. Reinsurers can address inadequate capital positions via injection of additional capital or through transfer of risks to third parties. This can be done via retrocessions which involve cessions to other reinsurers or Securities.
VIEWS
1. Capital positions is crucial for reinsurers and history have shown numerous reinsurers brought down to its knees in the event of catastrophes with government intervention to honour claims payable to insured.
2. The management of reinsurers’s risk, capital and management processes is highly dependent on the regulatory, accounting standards, and market environment of the reinsurer’s country origin and differs from one to another.
3. Link to the Article as below:-
http://www.cover.co.za/reinsurance/managing-risk-in-reinsurance
