1 / 11

Reinsurance as a Strategic Capital Management Solution Presenter’s Name: Greig Woodring, FSA Presenter’s Title: Presi

Reinsurance as a Strategic Capital Management Solution Presenter’s Name: Greig Woodring, FSA Presenter’s Title: President & CEO RGA Reinsurance Company Event Name: International Insurance Society Seminar Date: June 8, 2010. Reinsurance as a Strategic Capital Management Solution.

eunice
Download Presentation

Reinsurance as a Strategic Capital Management Solution Presenter’s Name: Greig Woodring, FSA Presenter’s Title: Presi

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Reinsurance as a Strategic Capital Management Solution Presenter’s Name: Greig Woodring, FSA Presenter’s Title: President & CEO RGA Reinsurance Company Event Name: International Insurance Society Seminar Date: June 8, 2010

  2. Reinsurance as a Strategic Capital Management Solution • Reinsurance has a long history as a capital management tool • Use of reinsurance in this capacity has increased steadily and will likely continue to climb • Virtually every reinsurance treaty contains some degree of capital leveraging

  3. Capital • Different levels of capital: • Economic capital, what you think you should hold to support your risks • Regulatory capital, what regulators believe you should hold • Rating agency capital, what the agencies think you should hold • Accounting statement capital, how much capital shows up on your official returns • Too much capital may be much better than too little; optimal capital levels balance safety and efficiency

  4. How much capital? Inefficient use of capital Optimal Capital Difficulty Attracting Customers Suggested Minimum Regulator Supervision Statutory Minimum Regulator Intervention Insolvency Source: Alex Thomson, Capital costs of Insurance – some empirical analysis

  5. Capital • Capital flows to best risk-adjusted returns • Sources of capital: • Capital markets for equity, debt, hybrid • Sell assets • Reinsurance • Embedded value securitization (essentially reinsurance through public markets)

  6. II. Comparison

  7. Capital • Value of a company may depend upon how it is financed if financing affects • Taxes • Borrowing rates • Cost of capital • “Flight to quality” environments reward strong capital positions • Capital markets have not been open during much of the recent crisis • Do not overly rely on any single form of capital • To determine optimal capitalization • Must know what capital you target • Must determine the most important metrics: ROE, embedded value, profit per share, etc. • Risk adjusted returns have taken on increased prominence

  8. Reinsurance as a Capital Tool • Like any type of capital tool, reinsurance has positive and negative features • Negatives: introduces large counterparty limited size compared with vastness of public markets may be more expensive may “shrink” the company • Positives: speed no prospectus no bankers, lawyers affects both numerator, denominator of capital ratio shows up as retained earnings (equity) cost private (usually) flexibility involves reinsurance of a block of business, but can be structured to fit needs

  9. Reinsurance Flexibility in a Capital Solution • Small or large amounts • In force or new business • Duration • Cash or cashless • Beneficial tax effects • Quick, dependable • Range of risk transfer from full to minimal • Slope of effects • Can be perfect hedge • recapture

  10. ReinsuranceMotivations • New business financing • Eliminate redundant capital • Increase liquidity • Monetize embedded value to recycle capital • Contingent capital • Merges & Acquisitions • Overall capital planning / management

  11. Reinsurance as a Strategic Capital Management Solution Presenter’s Name: Greig Woodring, FSA Presenter’s Title: President & CEO RGA Reinsurance Company Event Name: International Insurance Society Seminar Date: June 8, 2010

More Related