Efficient risk management for closed blocks of savings and investment products
Savings and investment product portfolios are characterised by significant exposure to financial market conditions.
Whether simple unit-linked products backed by funds, traditional general account products backed by fixed income assets or complex variable annuities backed by dynamic derivative hedging strategies, insurance companies face significant Asset Liability Management challenges to fulfil their promises to customers and protect their balance sheets.
Munich Re Markets offers reinsurance on in-force savings blocks ranging from targeted reinsurance of specific guarantee riders, to full quota share reinsurance covering all remaining obligations across a portfolio through to run-off.
Such transactions mitigate the insurer’s exposure to adverse development of financial markets, relieving capital requirements and fulfilling regulatory risk management obligations and capabilities.
As a reinsurer handling financial risks, Munich Re solutions sit at the intersection of actuarial and behavioural risks crossed with financial market exposures. Reinsurance covers that pay out based on the actual evolution of portfolios through time offer a close and bespoke fit for clients that could not otherwise be matched with static financial instruments that do not move with the portfolio experience.
All the benefits of complex dynamic derivative hedging solutions, in the simple and familiar format of reinsurance.
Frequently asked questions regarding savings portfolio run-off reinsurance
- Reinsured market risks are analysed by our Munich Re Markets’ team of structurers, quants, traders and other professionals and thereby deconstructed into their constituent parts, such as sensitivity to specific interest rates or equity market levels. These sensitivities are actively hedged by our in-house trading desk using vanilla instruments.
- Actuarial and behavioural risks are typically retained by Munich Re after experience analysis, benchmarking against comparable portfolios and stress testing.
- All risk management happens behind the scenes and reinsurance clients receive the benefit of reinsurance by reference to their specific claims experience without exposure to the results of the Munich Re risk management activity.
- An insurer pursuing a run-off solution will typically be required to provide no more information than that required to conduct Solvency II (or regionally equivalent) reporting.
- Descriptions of the benefits to be reinsured
- Details of actuarial assumptions and their foundation
- Portfolio data underlying statutory supervision reserves
- An initial robust indication of transaction terms can typically be provided within 4-6 weeks of the exchange of portfolio related information.
- Subsequent documentation and transaction finalisation has commonly been possible within a further 8 weeks, however, that timetable can be accelerated according to the context of a transaction – for example, to fit within the timescale of a concurrent M&A process, or to meet a relevant reporting deadline.
- In addition to the benefit of Munich Re’s standing as an institution with strong financial strength ratings, it is the norm for savings product reinsurance creating significant counterparty risk to be collateralised.
- Frequently updated collateral balances combined with Munich Re’s ratings status typically results in extremely low capital charges against low residual counterparty exposure.