Companies that take a positive view of Solvency II will gain wide-ranging business benefits - Page 2

So, the next step is to use the modelling platform as the basis for a series of calculations to test the outcomes of any number of different reinsurance strategies. They could be quite simple such as just assuming an increase in excess points.

Alternatively, the analysis might turn into a wholesale review of reinsurance strategy looking at, for example, combinations of changing aggregate deductibles, excesses, limits, reinstatements and placement percentages with the outputs from each scenario being a number of key statistics.

The most appropriate scenarios to consider will vary from organisation to organisation. In all cases, the crucial question is, what do you want your reinsurance programme to do for you? To put it another way, what are your priorities?

To make an informed decision, therefore, senior management needs to determine what it regards as the most important statistics. Possibilities include:
• Return on capital;
• Capital required;
• Expected net profit;
• Probability of failure to meet profit targets;
• Probability of falling below the regulatory minimum capital;
• Probability of failure to meet dividend targets;
• Probability of failure to meet certain rating targets;
• Likely effects on perceived solvency/ratings.

Whatever your choice, you must bear in mind that these statistics are inter-related and no one measure can be viewed in isolation. For example, it is difficult to imagine being able to maximise your return on capital without giving some consideration to the actual capital you hold, the reaction of the rating agencies and the regulator. 

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