[Insurance] Dealing with a market turning event in the general insurance sector

The general insurance and reinsurance sector has enjoyed benign losses and excess capital for a considerable number of years, driving the sector towards a soft market.
Consequently, current capital management levels are also a reflection of this soft cycle which in turn drives business plans and business decisions.

However, this environment could change at any moment due to uncertainty related to low probability and high severity of large insurance loss events, be it a single very large insurance loss event, a combination of significant individual loss events or a combination of insurance event and a secondary simultaneous disruption.

These market turning events (‘MTE’s) might have a significant effect on a firm’s solvency, their business plans, risk and capital management, reporting and disclosures, business decisions and communication with the regulator.

Last week, the PRA issued a consultative paper Dealing with a market turning event in the general insurance sector CP32/16 , which highlights how it expects general insurance firms to plan for and respond to such an event.

Mazars has prepared a comprehensive review service for specialty insurance and reinsurance firms, assessing all the steps that each firm would benefit from taking in advance to enable them to respond appropriately to an MTE and meet the regulatory obligations.

The review covers all aspects of preparation that should be undertaken before an MTE and the processes after the event such as:

-          Risk management

-          Capital management and financing

-          Governance

-          Reporting and disclosure

-          Tools and systems after the MTE

-          Business plan recovery

-          Internal model changes

-          Regulatory communication

Our independent review brings together all of the above aspects into one assessment, in order to enable firms to build appropriate flexibility within their plans and respond appropriately to MTE circumstances.

This preparation will enhance a firm’s existing internal model review and stress testing processes and ensure that exposure management processes and procedures are well integrated into the risk, capital, financial processes, business plan and recovery, as well as models and systems. It will ensure firms are able to:

-          React accordingly to an MTE

-          Ensure adequate capital resources at all times

-          Take advantage of business opportunities presented from a hardening market.

Mazars’ MTE review, utilising our expertise of the Lloyd’s and reinsurance markets coupled with our integrated skills in risk, capital and exposure management provided to the specialty and reinsurance market, will enable a Board of Directors to reassess their current practices for dealing with MTE and evaluate the firm against the industry benchmark.