Risk and Economic Advisory

JLT Re’s Risk and Economic Advisory Services provides clients with complete advisory service for all aspects of economic capital modelling. JLT Re supplies model-based advice on diverse portfolio management issues including pricing, underwriting, exposure optimisation and growth scenario modelling using a selection of services.

WHAT WE DO

Risk and Economic Advisory provides advisory insight to enable JLT Re clients to more effectively manage the balance between risk and return. The four areas for REA engagement include:

Capital Modeling Advisory

We provide complete service in all aspects of economic capital modeling.  These models are used for fundamental risk profiling, strategic decision making, enhanced transactional analytics, and ORSA process.

Portfolio Efficiency Advisory

Our STEM analysis provides a comparative framework for prospective efficiency (i.e. return per unit of risk) between P&C underwriting portfolios.  The model is effective for various strategic questions affecting efficiency dynamics, including the direction of organic growth, mergers and acquisitions, and need for reinsurance.

Insurance Sector Research and Advisory

This research seeks to understand market dynamics and fertilize our clients’ business plans with insights and opportunity.  Through this work, we unite company modeling with broader economics.

Enterprise Risk Management (ERM) and Own Risk and Solvency Assessment (ORSA) Advisory

We assist our clients in various ERM disciplines, from clarifying risk appetite and articulating risk tolerance, to developing ORSA process, to designing custom reports using risk registers, heat maps, and dashboards. 

Our Services

We provide complete service in all aspects of economic capital modeling.  These models are used for fundamental risk profiling, strategic decision making, enhanced transactional analytics, and ORSA process.

Introducing Economic Capital Modeling (ECM)

ECM should be considered nothing more than risk-aware financial planning. It augments existing planning process to enable a company to make decisions not only affecting performance along a most-likely projection, but also at various percentiles. It’s a framework for quantifying both upside and downside in financial projections, as well as exploring the drivers. We call this stochastic pro forma.

Our Approach

JLT Re is a partner in what we call complete risk profile management for our clients. Through the risk-aware financial plan, we excel at providing recommendations in our core area of expertise: reinsurance. But applications of the capital model also extend to exposure management, capital cost allocation, risk appetite and tolerance, investment decisions, and growth strategy.

What We Do

We support our clients in various capacities, including model design and development, validation of existing models, and applications to strategy, ORSA process, and ratings dialogue.

What’s Different?

We differentiate ourselves through intellectual property derived from experience and robust consulting. We empower our clients to take ownership of critical assumptions and understand the sensitivity of results to the design. For example, through our STEM analysis, we offer both experience-based and exposure-based indications of volatility and correlation in underwriting results. Our ANSER project is so exciting because (when complete) we will offer the most capable, flexible and user-friendly software in the industry. ANSER will be used in our own work, but also available exclusively to clients through license.

Introducing STEM

P&C insurance portfolios are exposed to a wide variety of natural perils and systemic loss drivers. A well-engineered portfolio management strategy seeks to identify opportunities to improve expected return at a rate that exceeds risk accumulation. STEM assists our clients in designing strategy for efficient expansion across geography and product mix.

Impact on Your Business

STEM can provide valuable technical guidance to the critical challenge of how to grow profitably. It provides direction for achieving stable and risk-aware underwriting returns. Combined with practical market analysis of regulatory issues, competitive landscape, and opportunities for distribution, STEM can feature prominently in your corporate strategy.

Methodology and Output

STEM is a granular loss portfolio model for the entire US P&C premium base: state-by-state and line-by-line. It expounds the structural characteristics of risk accumulation for both property and casualty exposures. Expected correlation of attritional losses between lines of business is explicitly recognized as a function of premium volume. STEM maps efficient pathways to strengthen a portfolio through acquisition of new business, organically and inorganically.

Data Required

Our consolidation of statutory financial statements across the industry provides market reference experience for loss, premium and expense. STEM also permits you to override market reference experience with refined actuarial projections. Constraints, such as maximum growth that can be supported by surplus, or geographic limits to distribution, can be easily incorporated into the model.

What’s Different?

STEM permits a company to chart a unique development path from the existing premium base because it is a complete performance model of the entire industry. Rather than analyzing a static amount of new business ‘at the margin,’ STEM prescribes a sequence for efficient growth. Its capability to replace market reference experience with your own assumptions further ensures that the insights derived are unique to your risk profile.

Hot issues in the industry

  1. The need to formulate your own view on risk: New regulatory requirements may present a burden but also offer an opportunity to develop your own philosophy and dashboard for making decisions in a risk-aware framework.
  2. Focused attention from rating agencies: The new Best Credit Ratings Methodology (BCRM) as well as revisions to Best’s Capital Adequacy Ratio (BCAR) both feature revisions adding weight to the importance of ERM in the ratings process.
  3. Clarifying risk appetite and articulating risk tolerance metrics: Management should adopt a common approach for reporting to the board of directors, for application in the ORSA process, and for dialogue with ratings agencies.
  4. The role of economic capital modeling: The capital model has emerged as a process for preliminary risk profiling, maintenance of exposure-sensitive metrics, and a framework for strategic decision-making.

Getting started with ERM

The first three steps to get started with ERM include involve Profiling, Clarifying, and Articulating:

  1. Profiling Risk and Performance: This is the exercise of assessing the organization’s key risks and opportunities. Analysis and comparative benchmarking expound the nature and relative significance of these issues. Together, the firm develops and understanding of its performance profile.
  2. Clarifying Risk Appetite: Risk appetite is a strategic, high-level mission statement detailing the rewards you are seeking, the risks you are willing to assume, and the constraints within which you manage the balance. At JLT Re, we can facilitate the necessary dialogue among management to either refresh your existing risk appetite, or develop a new statement that is current with market and company conditions.
  3. Articulating Risk Tolerance: These metrics are quantified limits of a company’s appetite for acceptable risks. They can be stated at various levels: enterprise, product, and individual risk. We work with our clients to identify the metrics that are necessary to operate within its stated risk appetite.

 

Contact Us

Micah Woolstenhulme
Head of Risk and Economic Advisory
+1 215 309 4637
micah.woolstenhulme@jltre.com

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