© Nigel Killeen 2016

Capital Management and beyond

Go beyond traditional reinsurance with alternative risk transfer solutions that increase your organisation’s ability to improve capital management, smooth earnings, and meet capital or  solvency requirements.
Capital Management at Munich Re
© Munich Re
Technical Return is more important than ever in low-yield environments with the increasing shareholder expectations that many large organisations face today. The ability to flexibly manage volatility is key, in particular in situations following strong financial performance in previous years which lead to high expectations in current and future periods. Suboptimal deployment of trapped capital or inadequate volatility management can prevent your organization from delivering on promises made to the capital markets. In the worst case this can result in lowered long-term trust from your shareholders and negatively affect company evaluation. The power of reinsurance– both traditional and on the basis of structured risk transfer mechanisms – is that they can help to  boost profitability when necessary.
Insurance regulation and supervision is evolving in countries all over the world and forces organisations to meet more stringent capital requirements. At the same time, the assessment of rating agencies has a major impact on the financial flexibility of organisations. In this environment, a capital shortfall can put organisations into difficult situations very fast – for example forced measures from a regulator or a negative rating outlook with the threat of a rating downgrade. Worst case consequences can even go as far as a regulatory enforced ban to continue writing business. Capital relief focused reinsurance mitigates such downside risks, increases the scope of capital management instruments and can improve capital efficiency fast and flexibly.
Reorganisations of a company which often involve acquisitions or divestments as well as run-offs typically involve significant risks and there is no success guarantee. For example adverse development in business written in the past can result in unexpected deviations from your planned results.  Utilising reinsurance in the context of acquisitions and disposals can help you neutralise any unexpected developments from legacy exposures and free up resources for future investments. This increases the chance of a successful reorganization.
When disasters strike, the response needs to be both immediate and adequate. No matter whether damage is precipitated by natural disasters or economic interruption is triggered by infectious disease outbreaks, insurance payments made after lengthy evaluations are of little use in addressing emergency response needs in order to mitigate crisis escalation. The sooner large event losses are indemnified and economic disruptions can be resolved the lower the economic long term costs of catastrophes, which is why responsible organizations and authorities require solutions that enable them to act immediately. Reinsurance solutions can be efficiently structured to provide the immediate response needed when a natural disaster strikes.

Client Motivation Cluster: % of deals

41%
of client’s motivations are event driven
As markets change, portfolios evolve, new types and levels of risk emerge that might include cyber security, political risks or supply chain risks. When optimising your organisation’s reinsurance, it may be prudent to separate these risk types from existing solutions so they can be better quantified and managed in terms of contractual formulation, pricing, retentions and limits. Whether a traditionally reinsured cedant or a corporate captive, each organisation wishes to optimise the capital efficiency of its position to ensure their cover remains adequate.
Even the best laid business plans can encounter disruptions. But the avoidance of negative movement on planned figures is key for ensuring trust in your organization. Tailor-made reinsurance can protect your capital base and minimize the impact of distressing situations.  A well devised business plan protection strategy delivers earnings smoothing in support of strategic targets.

Key challenge: optimal use of capital

Insurance regulation and supervision is evolving in countries all over the world and this forces organisations to meet more stringent capital requirements. Technical returns are becoming more important than ever in low-yield environments with the increasing shareholder expectations that many large organisations face today. In the current market environment even the best laid business plans can encounter disruptions which ultimately threaten the performance of the company. At the same time portfolios evolve and new types and levels of risk emerge that are less predictable in terms of frequency and severity e.g. cybercrime, political risks or supply chain risks.

That’s why corporations are considering strategic reorganisations including  acquisitions or divestments as well as run-offs to achieve their growth and profitability targets. The combination of these challenges is what makes capital performance more demanding than ever.  Munich Re’s tailored insurance and reinsurance solutions enable you to stay on track with your plans, even when the unexpected happens.  

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