As the panel of John Levy (SwissRe), Angela Sampson (Guy Carpenter), and Dustin Loeffler (Aon), moderated by Jose Martinez (SwissRe) explained, for those looking for assistance in growth, capital management, protecting against volatility, and desiring sufficient risk management, reinsurance is a good choice. Given the panel’s varied backgrounds as actuaries, they cited the volatility around reserves being the biggest risk, especially in light of recent social inflation. A replay of the panel presentation is available to AIRROC members via the AIRROC On-Demand Library.
Yet, there is a deeper choice in considering what type of reinsurance to select. Stating the obvious, prospective reinsurance protects future events, especially short tail P&C, while retrospective reinsurance protects past events, especially long tail casualty. Our audience learned about the differences between prospective accounting treatment (immediate) versus retrospective (over time). It was also fascinating to hear the panel discuss how the handling of claims generally stays with the insured in the case of prospective reinsurance, while those selecting retrospective reinsurance usually can also transfer the claims to the reinsurer for handling. This sometimes results in loss portfolio transfers as well utilization of a Third Party Claims Administrator to resolve those open and emerging claims.
Regardless of prospective or retrospective, structured reinsurance addresses similar needs and concerns of insurance carriers. Traditional prospective reinsurance essentially prices the history of the insurer while retrospective reinsurance can be structured such that it “rewards” success. Earnings volatility management is another concern reinsurance can address, especially with the pressure from various regulators and rating agencies regarding BCAR, ERM, and RBC for example. Of course, some carriers are under private equity ownership and given a potential focus on “lean capital,” the utilization of these forms of reinsurance are quite helpful. Smaller mid-sized mutual insurers may also have more sensitive balance sheets so reinsurance can be critical. In thinking about “captives” paying very close attention to their risks and balance sheets, especially given their unique structure, the panel mentioned captives (and other stakeholders) wanting to know who will be there to support them now and later, once losses have materialized.
In conclusion, yesterday’s underwriting is tomorrow’s legacy! The utilization of one or both forms of reinsurance can be critical when considering ongoing books of business, moving a book of business from “live” to “legacy” or entering/growing a line of business. There are many reinsurers reinsurance intermediaries, law firms and TPAs who are members of AIRROC available to provide advice so that you don’t need to go it alone in considering your options and creative solutions.
