Making capital work in a changing market

Re/insurers decisions on making capital work for their businesses have profound impacts on the market, and the challenges are significant. But technology could help achieve better outcomes delegates at the Re/insurance USA Outlook hear.

Managing their capital is critical for the future of any re/insurer, but how can they meet the needs of supply and demand? To discuss this, four experts joined the keynote panel session at Intelligent Insurer’s Re/insurance Outlook USA 2024 conference, taking place today (May 2) in New York: 

• Brian Sabia, chief underwriting officer at Toa Reinsurance Company of America;

• Anthony Shapella, deputy chief underwriting officer for SiriusPoint;

• Simon Rees, chief actuary at Axa XL; and

• Peta White, president of the Reinsurance Group at Vantage Risk.

As well as looking at how re/insurers could optimize their reserving strategy, the panel also explored the role of ILS and alternative capital and practical frameworks for balancing capacity with market needs through strategic partnerships, portfolio diversification and agile risk management. Finally, they discussed developments in real-time risk assessments and the role of technology in developing responsive, and agile reserving strategies. 

As Rees noted at the outset, the discussion is complicated by the range of capital in question, including equity, debt and reinsurance. “And each of those has different objectives,” noted. Equity may target dividends or growth; debt could be senior or junior, targeting different spreads. 

“Even with reinsurance, there’s quota shares, excess of loss… They want to access different types of risks – cat risk, casualty, cyber, and they want different distributions of returns as well.” 

Appreciating those different types of capital will help calibrate the re/insurer’s strategy to meet their objectives. 

For Shapella, it was a live issue since his firm is in the midst of formulating its five-year strategic plan and determining what lines of business to write in what regions. “The key question is how you allocate that capital to achieve a return that's attractive to the firm without taking too much risk,” he noted. 

The answer arrived at is not just of relevance to re/insurers, he noted.

“As all our companies do that exercise for making conscious decisions about how much to allocate, that has downstream impacts on the amount of available capacity in the industry. As we tighten the belt in certain places such as after the 2022 cat year – or dial it up, that's going to have impacts on cedants; that's going to impact on buyers of insurance.”

“Diversity is key over the cycle,” noted Sabia.

One factor in re/insurers’ favour as they contend with such challenges is the rise of technology. White drew on the experience of her company, Vantage Risk, founded in 2020 as a “tech-enabled” business.

“From inception, our value proposition has been centred around technology, not only to bring efficiencies but also to use data and analytics to provide insights for our portfolios and to share with our clients,” she said. 

Leveraging technology and publicly available data enables people to make better decisions, she said. “It's not about replacing people, but it's about giving people the tools to make decisions better faster and hopefully cheaper,” she concluded.

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