Reinsurance is the most significant spend for most insurance companies. As such, it is critical to ensure that companies get value for money. This is best achieved by working with an expert to undertake a detailed reinsurance optimisation analysis.
The value of reinsurance optimisation:
- Understand the economics of each reinsurance contract. This means having a clear understanding of the income and outgo of each contract and the net result for the insurer. Only then can we determine whether it holds value.
- Understand which contract(s) attach to which risk. This determines which portion of each risk is reinsured.
- Determine whether treaty limits are appropriate by producing
- Claim and risk profiles and comparing these to the treaty limits and attachment points.
- Set goals for the reinsurance optimisation and test alternative reinsurance options to achieve these goals.
- Propose practical and viable changes for implementation with the aim of significantly improving the net underwriting result of the insurer.
Data-driven, efficient and effective
In 2019 QED was approached by a large general insurance company in West Africa to address their reinsurance concerns. The insurer had a gross profit margin of 31% and a net profit margin of 2%. An average reinsurance ratio of 58% was in place across all classes.
1. Data and information gathering
The QED team set about gathering detailed data regarding the premiums and claims applicable to each reinsurance treaty. The data was verified against finance data and presented for sign off by the client.
2. Understanding the economics
Armed with all the essential data, the team constructed the reinsurance programme. QED set about analysing which treaties and which reinsurers were making a profit in order to identify the contracts where the most profit was ceded away.
3. Test and optimisation
We aimed to establish the value provided by the current reinsurance programme versus alternative programmes. The QED team considered various alternative reinsurance structures to identify the most appropriate and cost-effective structure given the company’s objectives, risk appetite and unique risk profile.
4. Presentation of results and agreed actions
With analysis and optimisation exercises completed, QED presented its findings to the client to highlight alternative structures and recommended changes to existing contracts. The presentation included a ‘what if’ projection to show the projected impact on the net underwriting result for each of the proposed alternatives.
As a result of QED’s intervention, the insurer saw the following impacts:
Why use QED?
Knowledge – QED’s seasoned actuaries boast extensive experience in reinsurance across the African continent.
Independence – We operate independently of any reinsurer or reinsurance broker and our fees reflect the value we add and not the amount of reinsurance that is placed.
Insights – Our experts have a deep understanding of the risk appetite, return on equity and capital requirements across Africa.
The combination of these three core pillars enables our experts to produce the best net result for each client, based on their chosen risk appetite and individual requirements.
QED is the largest independent actuarial consulting firm in Africa. For the past 25 years we have been providing actuarial services throughout the continent from our head office in Johannesburg, South Africa. In 2019 QED sold a majority interest to leading black-owned empowerment investment holding company African Rainbow Capital Financial Services Holdings. This move elevated QED to the status of the largest majority black-owned actuarial firm in South Africa and the rest of Africa.