Seizing the Opportunity: Building a Comprehensive Approach to Risk Transfer

Seizing the Opportunity: Building a Comprehensive Approach to Risk Transfer
Aon Insights Series UK

06 of 11

This insight is part 06 of 11 in this Collection.

May 31, 2024 9 mins

Seizing the Opportunity: Building a Comprehensive Approach to Risk Transfer

Businesses are still in search of competition, alternatives and innovation in their insurance programmes.

Our Risk Capital Case Study session featured a discussion with Tom Richardson, Group Insurance Director at Associated British Foods.

The session explored ABF’s risk management and risk financing approach and how they have designed an innovative reinsurance solution to help to smooth their Total Cost of Insurable Risk.

The hardening market at the turn of the decade, combined with the pandemic and subsequent geopolitical and economic hardships have taken their toll on the insurance market and the programmes placed on behalf of Aon’s clients.

Even though the pricing curve has flattened since the hard market, clients are still in search of competition, alternatives and innovation in their insurance programmes.

New entrants to the marketplace are always welcome and help to fuel competition, and those have in part led to an increasing amount of attention being paid to Alternative Risk Transfer techniques and solutions.

One such solution we are focused on is Structured Reinsurance. These solutions are not necessarily new but have been adapted in recent years to ensure they are compliant with accounting rules and regulations by offering true risk transfer capacity.

Every structure is unique, but the common features are:

  1. Multi-year term often between three and five years
  2. Single stretched limit of aggregate capacity over the term
  3. Opportunity for the client to share in any profit at the end of the term and benefit from interest earnings on the premium
  4. Fixed premiums regardless of loss activity over the term

These structures may not work for every client, but those that have selected such deals have benefited in numerous ways:

  1. Fixed premiums allow for budget stability and longer-term planning
  2. Profit and loss volatility in a captive or company financials is more easily managed
  3. Captive involvement in the programme can be increased without significant increases in capital
  4. Competition is brought to the conventional marketplace
  5. Burden of the annual renewal process is drastically reduced

These solutions are available for most classes of insurance in any country around the world. They do require the client to have incurred some of the risk, but that comes in form of both the upside as well as the downside.

With the appropriate data, obtaining an indication can be a relatively quick exercise — as little as four weeks — while actually binding a formal quote can take more time as well as requiring independent accounting advice. As such, at least three months is required from start to finish to execute such a solution.

Article by
  • Guy Malyon
    EMEA Strategic Broking Director, Aon

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