David Rains, Managing Director at Guy Carpenter (GC), has argued that “the time has come to challenge the traditional life reinsurance paradigm” and elevate solutions for volatility management to the enterprise level.
According to Rains, purchasing reinsurance protection at the corporate level could avoid the issue of overpaying for unneeded risk transfer.
He noted that life insurers typically purchase cover to achieve four main goals – capital management, catastrophe protection, volatility mitigation, and product support.
The fourth purpose – product support – drives the majority of life reinsurance that is currently in-force, and may include support for product development or proprietary smart underwriting platforms.
A more traditional approach to this kind of coverage could include actuarial and underwriter consultation, access to the reinsurer’s underwriting manual, facultative support for risks outside the automatic acceptance parameters, and pricing structures customized to the underlying insurance product.
“Broadly, cedents want to ensure that the reinsurers will be able to pay claims and provide reserve credit perpetually,” Rains noted. “Reinsurers want to ensure that the cedent’s provided experience reflects future sales and certainty that the cedent will continue to carefully underwrite and manage claims as well as if the business were not reinsured.”
Historically, insurers could only purchase volatility mitigation through long-term reinsurance agreements that bundled potentially unwanted benefits at the product level.
However, Rains suggests that this buying process is misaligned to the dynamic need of insurers, particularly as big data and medical models begin to challenge reinsurers’ established risk knowledge.
“With the data, analytics and technology options available to insurers today, the time has come time to challenge the traditional reinsurance paradigm and elevate solutions for volatility management to the enterprise level,” Rains asserted.
This kind of approach can present a shorter-tail solution by focusing on managing a company’s quarterly and annual fluctuations, rather than substituting reinsurer pricing and expertise for their own on a by-product basis.
“Purchasing protection at the corporate level avoids overpaying for unneeded risk transfer, preserves strategic, long-term options for the business and provides healthier, more active relationships with risk partners,” said Rains.
“Avoiding unnecessarily lengthy reinsurance negotiations retains cedents’ flexibility and the speed-to-market needed to gain advantages.”
Guy Carpenter has previously helped clients to restructure reinsurance relationships and negotiate treaties, Rains noted, for example by developing contract language that helps cedants transition out of treaties that have become less reflective of their capital needs.