Smart Capital Management Solutions (SCMS) has been developed in recognition of the growing importance of capital optimisation within companies, especially since Solvency II came into force, and the increasing complexity of capital management strategies.
Capital optimisation is an increasingly important equation for insurers. Too much capital can mean that the company is perceived as not being efficient in the way it’s being managed, diluting the returns for the stakeholders; too little is equally risky and overexposes stakeholders and policyholders to potential insolvency.
The tool enables and promotes interaction and dialogue between risk management, reinsurance and commercial activity.
The tool is extremely interactive, allowing reinsurance managers to ‘test’ numerous scenarios and different buying strategies, fine tuning them to understand the levels of capital relief achieved under Solvency II (in particular when considering the Standard Formula). The tool will indicate the effect these have on the capital efficiency of the company versus the cost of the reinsurance programme.
SCMS covers all of the main lines of business and calculates the solvency capital requirements under the Standard Formula. It covers the most risks including: Non-Life Risk (without the Lapse Component), CAT Risk, Premium Reserve Risk and Peril line of business.
For these perils, SCMS can measure: the ceded premium for quota share, excess-of-loss and stop loss treaties; the ceded preimum calculation takes into account multiple lines of business (Lob), multiple perils and the sequence by which different treaties are applied to the same peril/Lob; the application of treaties to solvency capital requirments and the calculation of the new requirements; the gross and net average and the standard deviation LR.
The user-friendly programme allows reinsurance managers to select different perils and different types of reinsurance – quota share or excess-of-loss, for example – and input different scenarios for how much reinsurance they might buy.
The system is design to give an indicative cost of that coverage, allowing the user to run through various scenarios quickly and easily, including the nature and cost of reinstatements and complex multi-peril coverages. It will also reflect what affect increased diversification may have on capital efficiency.
Simone Zollia, Reinsurance Capital Manager of UnipolRe, said: “The reinsurance manager can set the programme up with certain parameters and information unique to their own organisation, they can start testing how different reinsurance buying strategies will affect their company’s capital efficiency versus the cost of the reinsurance programme.
“The user can run through unlimited scenario’s to get a deep understanding of what effect their strategy will have on the company’s overall internal capital models and overall risk profile of their companies. It facilitates an informed dialogue between the reinsurance buyer and other parties with vested interests such as the risk managers, commercial managers and chief financial officer.”
Marc Guy Victor Sordoni, the Chief Executive Officer of UnipolRe, said: “Capital optimisation is an increasingly important equation for insurers,” Sordoni says. “The tool allows reinsurance managers to ‘test’ numerous buying strategies, fine-tuning them to understand the levels of capital relief achieved under Solvency II (in particular when considering the Standard Formula).
“This has been well received by clients so far and we anticipate it will help us form very meaningful relationships with our clients going forward. It is another thing that sets us apart.”
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