Earnings Volatility Concerns Drive Reinsurance Buying, Willis Towers Watson Survey Finds
Due to pressure from investors, insurers are becoming less tolerant of missed earnings targets. They are moving to more sophisticated metrics such as return on equity and economic capital as a result, according to a recent, comprehensive international survey of insurers by
Reinsurance is used increasingly for earnings protection and volatility reduction by insurers whose purchasing is guided by "risk appetite statements" deployed to optimize capital management and profitability targets. 80% of insurers consider their risk appetite statements when defining their reinsurance strategies, according to the Global Reinsurance and Risk Appetite Survey Report 2017/2018.
Of 260 insurers from 51 countries surveyed, 98% have adopted a formal risk appetite, or intend to within three years. Respondents' Enterprise Risk Management capabilities have improved, but more progress is needed to achieve companies' risk-culture goals. Meanwhile, most respondents said that cyber is their main risk concern, due largely to difficulties in defining and managing cyber both from the underwriting and operational perspectives.
"Managing the volatility of underwriting results is of prime importance to insurers, and reinsurance strategy measured by risk appetite is key to that," says
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The survey of 260 insurance executives from 51 countries was conducted between June and August, 2017. Respondents included 74 life, 111 non-life, and 75 composite insurers, of which 90 were from
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