Swiss Re Insurance-Linked Fund Management

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Willis Re to enhance clients view of catastrophe risk, could help ILS too


Reinsurance broker Willis Re wants to help its insurer clients to enhance their views of global catastrophe risks, with a new dual approach to catastrophe risk modelling and risk analytics, something that would also benefit insurance-linked securities (ILS) investor or fund managers.

As part of the service it offers to clients, Willis Re aims to help them “more accurately measure, mitigate and articulate their catastrophe risk exposure for all major perils and territories globally – the Willis Re View of Catastrophe Risk.”

Essentially Willis Re is offering its extensive skills and analytics abilities, alongside the added reach and coverage provided through its work with science and academia through the Willis Research Network, to bring a greater level of catastrophe risk modelling, analytics, consultancy and understanding to clients.

In a pressured reinsurance market differentiation is key to success, with those who can outperform in terms of underwriting and pricing risks adequately and accurately the most likely to succeed. Access to advanced risk models and analytical coverage is vital to giving underwriters the best chance of success and cedants the information they need to lay off risk efficiently.

“Insurers are under increasing pressure from regulators and rating agencies to demonstrate a full, independent understanding and more reasoned quantification of their own catastrophe risk exposure,” the broker explains. “This isn’t always straight-forward given the multiple catastrophe models in existence, each with their own unique methodology and perspective.”

Willis Re wants to help its clients to develop their own view of risk, with the input of Willis’ extensive research and catastrophe risk analysis adding an even greater level of global coverage and insight.

“Willis Re takes a ‘best of both worlds’ approach: for perils and regions covered by vendor models, Willis Re enhances and validates these models; where no vendor models exist, Willis Re builds new proprietary models,” Willis Re continued.

With global licenses for all the main vendor models, as well as access to many more Willis developed models, or models developed by science and academic partners, the global insight and visibility into catastrophe risk that Willis Re can provide would also benefit ILS fund managers and investors.

The ILS market is constantly looking for new opportunities to expand into other catastrophe risk perils or geographies and is gradually gaining traction into new markets. Access to risk models is an essential part of this, as is developing their own view of risk, so the support of organisations like Willis and the enhanced global risk model coverage would benefit ILS players.

It could also help ILS players to gain access to model insights that they otherwise could not always justify the license costs of, with Willis Re’s guidance and the Willis Capital Markets & Advisory team helping them to structure deals in new regions or for new perils. It could also help some smaller ILS players to reduce their reliance on a single vendor model view of risk.

John Cavanagh, Global CEO, Willis Re, commented; “Risk quantification and risk management are high priorities within the boardrooms of insurers across the globe, and analytics plays a vital role in supporting these activities. The integrated approach through the Willis Re View of Cat Risk methodology helps clients to establish their own objective view, using what is best for individual needs, not what is simply available off-the-shelf.”

Rick Thomas, Head of Model Research and Development at Willis Re, added; “Although catastrophe modelling is based on extensive scientific analysis there have been unexpected shocks when major loss events have occurred. In some cases, companies may have been inclined toward an overreliance on an individual catastrophe model’s output in their decision making. Now insurers must improve their own analytical capabilities to truly understand the models they use to quantify and communicate the risk in their portfolios.”

Willis Re’s dual approach involves enhancing and validating existing models, where its experts can also adjust vendor models where appropriate or if the client view of risk requires it, and building new models where no well-established catastrophe risk model exists

Cavanagh explained the importance of this dual approach; “Each client has a unique portfolio and the Willis Re View of Catastrophe Risk helps them work through the range of models and complex scientific views to establish their own internal view. We use what is best for our clients’ needs, not what is simply available off-the-shelf.”

When rates are low, as the reinsurance industry has witnessed over recent renewals, the accuracy of data and risk model output used to inform underwriting decisions becomes even more important. Having the best access to views of catastrophe risk could provide insurers, reinsurers and ILS players with an edge required to make navigating the soft market cycle a less painful experience.

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