Part 1

The world over is experiencing unprecedented changes to risks emanating from a myriad of factors such as climate change, political volatility, rapid growth in technology and an ever-evolving legal and regulatory landscape. Reinsurance stands as a critical risk transfer tool with reinsurance treaty agreements forming the bedrock of the trade. However, merely having a treaty programme is not enough. Continuous monitoring and optimisation of the treaty agreement is cardinal in ensuring that the programme achieves and maximises the attainment of set company goals. Discourse in this article will delve into the means and ways an insurance company may optimise its treaty arrangement.

Why Optimisation Matters?

Optimisation of a treaty programme ensures that the best value out the programme is obtained and not just a cheaper pricing. It entails the protection bought is suitable for the organisation’s strategic goals, adapts to changing market conditions and fit for the organisations current stage of growth. It is important not to miss out on the opportunities that treaty renewals present – the chance to redefine attachment points, improve capital utilization, minimise cost and plug holes in silent covers that widen exposure. Matters to do with the administration of the programme and important clauses can also be relooked to enhance contract certainty.

Data And Tech

The importance of accurate, consistent and granular data cannot be overemphasized in the treaty optimisation process. As the adage goes “Garbage-In, Garbage-Out”, a treaty programme is only as good as the data behind it. Though the data input process can be administratively tasking, accurate data capture is crucial to not only the underwriting department but also to all other departments. This is more so with the introduction of IFRS 17, which demands more granular data. Reinsurers are also more likely to agree to cheaper pricing when clean, consistent, timely and accurate statistics are presented.

Analysing the data allows trends in the portfolio to be identified. For instance, trends in losses to be identified and necessary adjustments can be made to steer the portfolio towards the desired trajectory. However, this can only be achieved if the material data is captured accurately.

Advancements in technology have made the data capture process less manual and more automated. Various tools can be deployed to accurately capture material information on risks, check for consistency and allow for faster analysis and reporting. More advanced tools can be employed to conduct cat-modelling, pricing and simulate portfolio performance under varying stress conditions.

In conclusion, good data is the cornerstone to prudent underwriting including optimisation of a treaty programme. The tools used to analyse the data should not replace sound underwriting judgement but augment and sharpen the decision-making process. It is a worthwhile investment to shop for tools that cater to the unique data requirements of the organization.

Part 2 of the article will focus on the other salient matters pertinent to optimising a treaty programme.

Kunda Katumbo

Treaty Underwriter