Reinsurance News

Tokio Millennium Re CEO discusses refined capital markets strategy & broader reinsurance market trends

5th May 2017 - Author: Staff Writer

Stephan Ruoff, Chief Executive Officer (CEO) of Tokio Millennium Re (TMR), discussed the firm’s main target markets and operating strategies in a recent interview with Reinsurance News. Ruoff highlighted the firm’s commitment to income diversification through gaining momentum in two major areas, and also discussed the rise of InsurTech, the global political landscape and other reinsurance industry trends.

Stephan Ruoff Tokio Millennium ReTokio Millennium Re is the global reinsurance operations of the Tokio Marine Group, and Ruoff is CEO of the company.

Ruoff said that although the firm has been active in the reinsurance/capital markets convergence space since 2003, considerable effort was now underway to refine third-party capital markets strategy.

“TMR takes an entirely different approach to the capital markets than most of our peers by offering fronting capabilities. Using TMR’s highly rated paper, we facilitate the transfer of re/insurance risks to the capital markets, as well as offering protection to certain of our third-party capital partners which provides them with greater capital efficiencies.

“The second area is our Credit and Financial Products segment, which we began underwriting two years ago. We offer solutions mainly in niche credit insurance areas, staying away currently from mainstream credit or financial guarantee business. During 2017, Tokio Millennium Re (TMR) will continue to optimise its business portfolio by carefully managing its profitability through robust and analytical risk selection,” said Ruoff.

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Reinsurance News also discussed the rise of InsurTech, a trend that is set to disrupt global risk transfer markets in the months and years ahead, and Ruoff explained what TMR is doing to jump aboard and successfully ride the technology wave.

“This trend is very important to us as innovation in the financial services sector is moving at a fast pace and across a broad range of technologies causing disruption and shaping how we do business in the future. We are proud of our track record as an innovative and analytically driven company and we intend to remain agile in responding to new insights and technologies that have the potential to drive our business model or enable us to be more effective at managing risk.

“To this end, we have established a multi-disciplinary group at TMR to methodically monitor such trends and identify promising opportunities for potential investment or use by TMR primarily in the areas of data analytics, risk transfer and portfolio management. Some examples of our own development of technology solutions, include a launch last year of a highly innovative, proprietary third party capital risk portal; in addition, we are expanding our pioneer European hail-model to additional countries in Continental Europe,” explained Ruoff.

In today’s risk transfer landscape reinsurers are increasingly looking to operate at the primary level and eager to access direct client relationships. Reinsurance News asked Ruoff if this is a trend that was likely to continue to accelerate both at the firm, and at an industry level.

Ruoff explained; “At TMR we are in an exceptional position. As the reinsurance arm of the Tokio Marine Group, we are not looking to access direct insurance relationships ourselves, but rather we believe that we are well positioned to leverage our reinsurance expertise in collaboration with other Tokio Marine Group companies. However, for stand-alone reinsurance companies that are not part of a larger insurance group, I can see why this trend to access the direct insurance market will continue as a means of diversification and additional income streams.”

Adding to the pressures of the softening landscape and the challenges/opportunities brought about by technology, growing political instability has the potential to impact all industries of the world, including the reinsurance sector. Ruoff was eager to share his thoughts on how this uncertainty is affecting the reinsurance industry now, and in the future.

“In my view reinsurance needs to remain competitive. A company that wants to stay relevant, needs to operate in a capital efficient and agile way. Tax regimes are one important consideration but clearly not the sole driving force. A company needs to look at and invest in its systems, processes, organizational set-up and cost-structure in a holistic way to remain agile and relevant in a highly competitive environment. A modern operating platform must be scalable to adapt to the reinsurance cycle, while continuously being able to accommodate any new political, regulatory, tax or rating agency imposed changes,” explained Ruoff.

While the global political landscape remains uncertain, one thing that is clear is the important role the reinsurance industry plays in global resilience and risk financing, and Reinsurance News was keen to hear Ruoff’s thoughts on how the industry could provide even more value through the deployment of its own capacity.

“Personally, I believe that there are many ways in which reinsurers such as TMR can contribute to making this world more resilient. The true challenge will be to pick the right opportunities that best fit a company’s competitive advantage. As demonstrated by TMR’s third party capital strategy, reinsurers can invest in improvements in the way they work, by achieving higher transactional efficiency through technology. This is something that TMR is very focused on as we continue to look at ways to improve how we operate and conduct business. Likewise, reinsurers can also invest into matching more risk to capital. This is a key differentiator for TMR in how we work with the capital markets, e.g. by providing third party capital access to risk pools they normally would not consider.

“Another example is to invest into extending the protection coverage to populations that couldn’t afford such protection, by developing parametric solutions. Reinsurers can also invest in extending risk protection to very large risks, to new risks or risks previously considered uninsurable. One way in which TMR has focused its investment and energy on global resilience issues is its research and development on climate change to drive our understanding of the risks and help our clients better understand their exposures. In this way, TMR, together with its customers, can help tackle large catastrophe risks to reduce the protection gap that exists in certain populations and regions,” said Ruoff.

Times clearly remain challenging for reinsurers in all corners of the world as capacity remains abundant, competition high, interest rates low and the general softening cycle. Ruoff discussed what he sees as the greatest challenges for the reinsurance sector moving forward, and for TMR specifically.

“Generally speaking, the reinsurance sector is faced with continued soft market conditions leading to unsatisfactory returns on deployed capital. But this is nothing new and at TMR we have proactively tackled this persisting reality by keeping the right balance between portfolio optimization, cost control and deployment of funds to future growth opportunities. However, there are other challenges that we keep a close eye on such as tax regime changes, interest rate related changes (as seen in the UK with the Ogden rate change) and regulatory/compliance challenges. These challenges, however, need to be addressed because we have no viable alternatives at this time to the basic premise of reinsurance, which is global risk diversification.”

Our thanks to Stephan Ruoff for his time.

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