January 26th, 2015

Holistic Balance Sheet Management: Ensuring Added Value; Introduction to Videocast Series

Posted at 1:00 AM ET

A holistic approach that optimizes the use of the two traditionally separate areas of balance sheet management (reinsurance and investment strategy) can make a significant difference to (re)insurers’ financial results. (Re)insurers should seek to address both the asset and liability sides of the balance sheet in an integrated manner.

Guy Carpenter & Company, in partnership with sister company Mercer, hosted the inaugural Holistic Balance Sheet Management client evening in London on November 5, 2014 to underscore the advantages of optimized risk and capital positions for our clients and demonstrate our advisory and transactional services for achieving that goal.

Mercer and Guy Carpenter work with a number of (re)insurers to improve and optimize return on capital (ROC). As (re)insurers are currently facing many headwinds that include the low-yield environment, competitive pressures on insurance rates and a developing regulatory landscape, including Solvency II,  we believe that Guy Carpenter and Mercer are uniquely positioned to provide a holistic approach to capital optimization and risk mitigation. By examining the risk and reward across the whole balance sheet the opportunity to add significant value becomes apparent.

Mercer’s services for insurers range from strategic investment risk management to practical implementation of investment strategies supplemented by transparent risk reporting expertise. Likewise, Guy Carpenter has extensive expertise in working collaboratively with its insurance clients to develop sophisticated reinsurance and risk solutions. By combining reinsurance and investment strategy the potential to unlock hidden value from diversification is increased as well as greater absolute returns through optimized risk management.

To date, insurers have primarily focused on the modeling and compliance aspects of Solvency II. But with the global low-yield environment and declining premium rates likely to persist for some time, the focus is shifting to improving the return on capital - not just measuring it. The key lies in aligning both the investment portfolio and the insurance risk in order to make informed, optimized decisions regarding the most efficient risk profile. By establishing a common basis for metrics between the risk classes and creating an efficient framework for the evaluation of relative risk/reward, Guy Carpenter and Mercer are able to deliver the most appropriate solutions for clients.

Suitable solutions must take into consideration a number of other factors including:

  • Solvency Capital
  • Rating agency capital
  • Liquidity
  • Capital buffer adequacy
  • Profit and loss
  • Share price impact

These solutions may include either increases or decreases in investment risk or underwriting risk, as well as the consideration of reinsurance as a key pillar of capital. 

In the next few days, GC Capital Ideas’ daily post will feature a series of video segments from the inaugural Holistic Balance Sheet Management client evening in London.

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Guy Carpenter & Company, LLC provides this post for general information only. The information contained herein is based on sources we believe reliable, but we do not guarantee its accuracy, and it should be understood to be general insurance/reinsurance information only. Guy Carpenter & Company, LLC makes no representations or warranties, express or implied. The information is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such. Please consult your insurance/reinsurance advisors with respect to individual coverage issues.

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