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Earnings volatility concerns drive reinsurance buying, Willis Towers Watson survey finds

July 9, 2018

ARLINGTON, Va., July 09, 2018 (GLOBE NEWSWIRE) -- Due to pressure from investors, insurers are becoming less tolerant of missed earnings targets. As a result, they are moving to more sophisticated metrics, such as return on equity and economic capital, according to a recent, comprehensive international survey of insurers by Willis Towers Watson (NASDAQ:WLTW), a leading global advisory, broking and solutions company.

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. Eighty percent 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 James Kent, global chief executive officer, Willis Re. “This is particularly relevant for public companies where perceived volatility can severely impact share price, but also a wider range of insurers are now much more likely to consider a broad range of consolidated earnings metrics when assessing the impact of reinsurance. Our survey shows that the number of non-life insurers using rate of return on equity as their primary earnings metric has doubled in the past two years. This is in line with what we are currently experiencing in the field when realigning reinsurance programs to insurers’ strategies.”

“Changes to the global regulatory environment have increased the emphasis on capital measures and targets,” said Alice Underwood, global leader, Insurance Consulting and Technology, Willis Towers Watson. “Although regulatory capital is still the most relevant capital measure, economic and catastrophe risk capital are gaining momentum. The use of internal capital models increased substantially from a third to more than half of insurers between 2015 and 2017.”

A copy of the report can be downloaded here.

About the survey

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 Europe, the Middle East and Africa; 109 from Asia Pacific; 43 from North America; and 18 from Latin America and the Caribbean. They included private, public, mutual and state-owned carriers with annual premiums ranging from less than $100 million (46 companies) to more than $5 billion (59 companies).

About Willis Re

One of the world’s leading reinsurance brokers, Willis Re is known for its world-class analytics capabilities, which it combines with its reinsurance expertise in a seamless, integrated offering that can help clients increase the value of their businesses. Willis Re serves the risk management and risk transfer needs of a diverse, global client base that includes all of the world’s top insurance and reinsurance carriers as well as national catastrophe schemes in many countries around the world. The broker’s global team of experts offers services and advice that can help clients make better reinsurance decisions and negotiate optimum terms. For more information, visit willisre.com.

About Insurance Consulting and Technology

Willis Towers Watson’s Insurance Consulting and Technology business has over 1,200 colleagues operating in 35 markets worldwide. It is a leading provider of advice, solutions and software — primarily to the insurance industry. Its consulting services help clients manage risk and capital, improve business performance and create competitive advantage — by focusing on financial and regulatory reporting, enterprise risk and capital management, M&A and corporate restructuring, products, pricing, business management and strategy.

About Willis Towers Watson

Willis Towers Watson (NASDAQ:WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has over 40,000 employees serving more than 140 countries. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com.

Media contact

Ileana Feoli: +1 703 258 8556 ileana.feoli@willistowerswatson.com

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