CICA Conference – Using Reinsurance to Make Strategic Decisions
Presenters – David Sullivan (AON Benfield), Paul McKeon (TransRe) and Brian Alvers (AON Benfield)
(Re)Insurance Market Overview
The worldwide total supply of insurance services has grown to $4.2 trillion in 2014. There has been a steady growth in supply since a sharp reduction of 29% in 2007 – 2008.
The supply has grown steadily to $575 billion in 2014. Reinsurance supply experienced a 17% reduction in 2007 – 2008.
The US market now totals $72 billion.
The total property excess insurance demand has grown steadily for the last 20 years. The total casualty reinsurance demand has been very flat or decreased for the same period. In 2006, the property excess insurance demand equaled the casualty excess insurance demand. Property reinsurance demand presently outpaces casualty by $10 billion.
Reinsurance Fundamentals
One of the more interesting points brought out in this session was thinking of reinsurance as just insurance for insurance companies. It can also be thought of as a cost-efficient, renewable, financially secure source of capital that compares favorably versus other forms of capital.
This is a great concise article on using reinsurance as a source of capital.
Insurers buy it for sleep at night coverage as it protects against catastrophic loss. The insurers can fund more predictable layers.
How Can a Captive make an evaluation?
Excess insurance reduces volatility unlike using debt or equity for capital. Measuring the capital requirements involves heavy use of financial formulas including leverage ratios and modeling.
An actuarial study of this insurance layer is critical. The flipside of reducing volatility is the essence of excess insurance itself.
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