How can insurers protect against adverse developments?

24 October 2016

Structured reinsurance solutions could be the answer to growing cyber risks and aggregate exposures.

Adverse development covers protect against unexpected prior-year reserving developments, either for specific products or across entire portfolios.

Notably, the insurance industry was landed with a large and unexpected bill for asbestos liabilities in the 1980s and 1990s. Today, while latent disease exposures are still a concern, uncertainties around new technologies and cyber risks are motivating some insurers to explore options to protect their business.

Adverse development covers are one option – used to address past issues with higher retentions. But many companies are now turning to prospective structured solutions to address potential issues in a proactive way, says Hugo Kostelni, President, JLT Re Structured Products.

Managing aggregates

Aggregate exposures, such as an unexpected series of storms or large man-made losses, are another problem for insurers. Aggregate stop loss cover and working layer excess of loss covers provide capital relief, frequency and severity protection and systemic risk protection for certain risks or for an entire account.

“Stop loss cover gives comfort around underwriting results and can help to protect insurers’ balance sheets and earnings in a market where rates are low and falling,” says Kostelni. 

Alternative reinsurance products can also be used to reduce the risks of expansion in a competitive market, whether it’s growth in new territories or new products.

For example, JLT Re recently arranged a structured quota share reinsurance for a Lloyd’s syndicate looking to expand into non-standard auto business. The policy enables the syndicate to earn a margin on the business and an investment return, while at the time protecting the portfolio.

Download this Risk Perspective article.

For more information contact Hugo Kostelni, President, JLT Re Structured Products on +1 415 967 7901 or email hugo.kostelni@jltre.com