Analytics software: the game changer reshaping reinsurance

The global reinsurance industry as we knew it is no more.

This sector is transforming not only the way it services insurance companies, but also in the size and nature of its service providers.

Gone are the days where the sole objective of reinsurance brokers was to provide additional capacity to insurers - and then, only by the so-called big industry players.

In a world where value provides a competitive edge and technology has become a key driver, reinsurance brokers are shifting their offering from merely finding additional capacity for insurers' risk to a far more dynamic contribution: ceded reinsurance modelling and optimisation using cutting-edge strategic decision analysis software.

This is not limited to the big global players. In fact, many smaller, more agile reinsurers are opting for this advanced technology to give their reinsurance solutions a significant strategic advantage that some of the larger, old firms are battling to replicate.

Deloitte's 2020 reinsurance report, This time is different: Six trends that will determine the future of global non-life reinsurance, confirms this. It predicts that the reinsurance model of the future will seamlessly combine risk transfer with value-added services.

"Reinsurers will strengthen their relevance by pivoting away from providing primary insurers with capacity, which they need less than in the past. Instead, reinsurers will focus on smoothing primary insurers' earnings, protecting them from the 'risk of ruin' and offering them value-added services. These services will include technology solutions that help primary insurers to optimise their business and operating model," the report says.

It goes on to explain how technologies such as cloud storage, external data mining and analytics are powerful industry game changers, revolutionising the speed and accuracy with which risk is identified and analysed. It adds that start-ups will accelerate the adoption of these new technologies, bringing them to market faster than incumbents.

This has certainly been our experience at Reinsurance Solutions Intermediary Services (RSIS). We quickly realised that the modelling software being used in South Africa and the broader region was slow, cumbersome, expensive and often, ineffective in the face of rapidly evolving risk.

The risk landscape was changing, but the local modelling software wasn't maintaining pace. We looked to the big, innovative global players that were known for keeping their finger on the pulse, to ascertain which technologies were the best to introduce to Southern Africa - a region with very specific risks compared to the rest of the world.

We saw that three of the globe's biggest reinsurers, namely Munich Re in Germany, and Gen Re and Transatlantic Re in the States, were all using Ultimate Risk Solutions (URS) modelling software, in addition to the top direct insurers and national reinsurers in many countries.

While many re/insurance firms merely adopt such technologies to ensure regulatory compliance, URS specifically advocates for the value-adding use of modelling to produce vital management information with economic benefits totalling millions of dollars for insurers.

Risk Explorer is one of URS's premium risk/capital modelling and strategic decision analysis software programmes. The fundamental purpose of this programme is to help primary insurers identify the best reinsurance option that, based on selected capital levels allocated to underwriting risk, would maximise returns on this capital when ceding risk. It essentially collapses all the value-adding applications of modelling into a single product.

Risk Explorer is exactly the kind of disruptive technology to which the Deloitte report refers. It is more efficient than all current competing toolbox-type products in model construction and use. It is much faster than all competing products, and the only cloud-enabled product on the market. And it contains powerful functionality for multiple applications that would usually require multiple products.

The benefits delivered to insurers are significant: fast, hassle-free evaluations and comparisons of even the most complex reinsurance programmes provided by different reinsurance brokers in real time, and accurate assessments of the relative efficiency of premiums paid for reinsurance to risk transfer received.

It's a fact that modelling can result in savings of 10% or more on ceded reinsurance while ceding the same risk, or in ceding more risk for the same cost.

Additional savings are realised through the programme's efficiency; many risk/capital models that take years to build by entire teams of modellers can now be reconstructed entirely in Risk Explorer within days by one person using the same inputs as the existing model.

Examples of this include a Lloyds Catlin syndicate where a complex Igloo model was developed over several years by large group of internal actuaries with a run time of two days. The model was eventually used only for regulatory reporting, as it had little business value. The majority of this model was reconstructed in Risk Explorer within two weeks with matching underwriting results. A cloud-based run of the model in Risk Explorer presented to the CRO, Chief Actuary and their colleagues took less than one hour.

Similar outcomes were noted when the modelling team at one of Canada's largest insurers developed a Remetrica model over two years that was replicated in Risk Explorer in two days, and when the programming team at a massive global US insurer with a cat portfolio of 1000+ risks built an internal system over several years with a run time of nine hours that was replicated in 72 hours with a run time of 1.5 hours.

This is the technology that is reshaping global reinsurance and through RSIS's license to operate Risk Explorer, the Southern African reinsurance industry as well.

In South Africa, we as RSIS exclusively hold the license for Risk Explorer. This means we are now able to offer a highly efficient modelling and aggregation alternative to direct insurers, reinsurers (risk portfolio modelling and underwriting/pricing support) and large property cat portfolios, as well as ceded reinsurance/retrocession programmes evaluations; solvency II and other regulatory capital calculations; capital allocations and risk-based pricing; and strategic asset allocations and the optimisation of asset portfolios.

This will shake up the South African reinsurance sector. As a fresh, agile reinsurance broker, we can respond to industry, market or clients' individual challenges as they emerge, with real-time solutions.

With the threat of the local reinsurance broking sector shrinking through mergers and acquisitions, there has never been a better time for a knowledgeable, experienced and highly responsive reinsurance broking firm to offer dynamic modelling options that save clients time and money.

Reinsurance Solutions Intermediary Services is proud to be able to do just that.