Companies that take a positive view of Solvency II will gain wide-ranging business benefits - Page 3

In the diagram below the return on capital is compared to the required capital from the output of a model when run with ten different reinsurance structures. The current return on capital on the portfolio is 18% with a capital required of £200m. However, the diagram illustrates that we can improve on the return on capital and reduce the capital required by changing our reinsurance structure. In particular, we find that we can improve our return on capital to 27% and reduce our capital required to £190m under one of the scenarios.



Informed choices 

All this helps to demonstrate how a thorough overhaul of your reinsurance buying, based on an understanding gained during a modelling exercise typical of what might be expected under Solvency II, can involve a radical review of virtually every aspect of an underwriting operation. And remember, reinsurance is just one of many areas of decision-making where modelling can give you the platform to make well-informed decisions.

This analytical approach will never be a substitute for the subtleties of management. Even something as numbers-driven as reinsurance goes well beyond the realm of the actuary, but the approach described above asks fundamental questions. And it ensures that the decisions are taken on the best possible advice. 

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