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Aon Benfield Analytics - Dynamic Portfolio Optimization

Portfolio Optimization
Aon Benfield Analytics

Portfolio Optimization brings insurers to the next level of strategic exposure management. 

Aon Benfield's portfolio optimization service provides clients with an exact roadmap for growing their portfolio with minimal increase in loss volatility or for effecting desired reductions in tail risk with minimal loss of premium.

Based on consultations with insurers, Aon Benfield identifies the appropriate risk and reward metrics and goals for optimization. Risk is generally some form of tail risk, such as Tail Value at Risk (TVaR) or Probable Maximal Loss (PML). Reward is often premium or a more refined measure of profitability. And the target goals are typically a new level of premium, a number of new policies or a risk reduction target.

Aon Benfield’s innovative and advanced portfolio optimization approach offers property and casualty insurers a unique competitive advantage and helps them develop portfolio strategies that effectively use capital to achieve maximum returns.

The Portfolio Optimization Advantage

  • Truly dynamic. Tail risk optimization is complex. Modifying clients’ starting portfolio by adding or removing policies during the optimization process affects the entire loss curve. This process considers not only the expected loss to a policy, but also the correlation of losses between policies. Aon Benfield’s sophisticated algorithms and computational efficiencies overcome this challenge.
  • Efficient Frontier. Aon Benfield's portfolio optimality solutions lie on the efficient frontier of risk vs. reward trade-off. Clients are assured that the recommended portfolios represent the maximum expected premium or profit that may be obtained for an acceptable amount of risk, or vice-versa, the minimum risk that must accompany a certain size portfolio. 
  • Business Constraints. An important aspect of any optimization is a careful understanding and implementation of any real-world capacity and operational and regulatory constraints. Common examples of constraints include availability of new business by geographic areas or limits on allowable non-renewals on individual agents’ books. The Aon Benfield approach seamlessly incorporates any number of such constraints in the analysis. Constraints for an optimization analysis are developed in consultation with clients.
  • Convergence. Aon Benfield’s optimality algorithms converge to true optimal solutions. These algorithms draw from multi-disciplinary academic backgrounds and are unique in the industry. We have solved problems in this area with which many practitioners are still struggling. Aon Benfield’s optimization analysis on request is accompanied by an excluded risk report which shows that the optimal solution cannot be improved upon by adding other risks that are available to the client but not in the optimal solution.
  • Flexible and Comprehensive. The results of a portfolio optimization analysis can be used to identify areas of growth, develop a non-renewal strategy, or accomplish both simultaneously. Aon Benfield's optimization analysis can be based on multiple catastrophe models of client’s choice. Multiple perils and lines of business may be considered in a single portfolio optimization analysis and there are no limitations on the number of policy considerations. In addition, Aon Benfield’s optimization approach incorporates the net effect of wind pool voluntary credits for the development of a comprehensive strategy in the coastal areas.
  • Actionable. Aon Benfield's optimal solutions are expressed in metrics specified by the client, which may be policy numbers, production by ZIP Code or county, rating territory, or whichever metric is most useful for managing production and underwriting.

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