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JLT Re Stuart Beatty

Fac Portfolio Optimisation (FPO)
by

matthew beatty

on 7 December 2012

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Transcript of JLT Re Stuart Beatty

Executive Summary We believe the following are critical to a successful Facultative strategy Defining A Successful Programme JLT Re works with clients to help develop and coordinate their Fac purchasing strategy and strengthen their position in this key area of reinsurance - We help clients reduce reinsurance premium spend while maintaining or improving their level of reinsurance protection/cost of capital - We help clients free up capacity in order to write additional business and pursue growth opportunities We help clients create a flexible reinsurance purchasing plan which will help during high growth periods and maintain stability as a book is developed. - We help clients optimise the impact of profitable Fac spend with key counterparty relationships. - We help clients bundle homogenous business into cost effective facilities JLT Re is uniquely positioned to assist (talent, global network, technology/analytics, benchmarking, market strength) - JLT Re can offer an unbiased consultative portfolio evaluation - JLT Re works in close collaboration with the broader JLT Re group resources to offer a truly integrated capital solutions approach - JLT Re will deliver quantifiable solutions that are aligned with our clients’ short, medium, and long-term strategic objectives. Core Beliefs Fac has is commonly sourced in a decentralised
model. Five key issue drive the development of our FPO offering: 1 2 Fac has historically addressed tactical issues in a line underwriter’s book but was not treated as a portfolio of risk transfer 3 Approaching Fac purchases in a truly integrated, holistic manner can drive real improvements in growth and Return on Equity (ROE) 4 Fac purchasing decisions should be more technical and fully aligned with corporate perspective and guidelines Optimising Fac spend requires putting it in the context of current treaty and risk retention strategies as well as incorporating perspectives and best practices from outside the organisation 5 Consultative Review of Programme Integrated Capital Solutions Global Approach - A well-defined Fac strategy helps ensure consistency and uniformity in approach


- Constant review of existing programme and new opportunities to guarantee the most efficient capacity - Continuously monitor regulatory changes and understand how they impact your reinsurance program

- View Fac in the context of your overall programme (Treaty, Fac and Capital Markets) to optimise your mix

- Utilise Fac as a strategic tool to provide flexibility when managing specific risks or risk portfolios

- Ensure credit is given for potential impact which any Fac spend may have on your treaty programme - Utilise third party market strength, global reach and creativity to optimise your portfolio and streamline placements consistently anywhere in the world

- Coordinate reinsurance guidelines to enhance individual decision making and ensure a global approach for finding new/alternative capacity Innovative Analytics - Calculate and understand the impact of your reinsurance programme on numerous metrics, including volatility, capital released, ceded ROE, cost of capital and impact on ratings

- Benchmark existing programme against competitor and best-in-industry programmes Improved ability to write more business where currently constrained Better defined Fac strategy Understand current Fac purchasing dynamics Benefits Contract consistency and standardisation Immediate and on-going annual bottom-line cost savings - Understand what is being purchased and why it is being bought

- Uncover anomalies or inconsistencies of Fac
purchasing in different regions or product lines

- Identify key drivers of loss or volatility - Optimise and target existing Fac spend; consolidate purchasing to gain leverage and renegotiate rates

- Improve / develop Fac purchase decision making process and underwriting guidelines

- Institutionalise best practices to ensure savings are delivered and maintained - Reduce spend due to a more focused portfolio-driven approach

- Identify risks that can be pulled out of a treaty and written more competitively in the Fac market

- Identify risks that can be rolled into a treaty more economically - Uncover opportunities to free up capacity in order to write additional business

- Possibly enter a sector in a conservative way underpinned by Fac reinsurance - Reduce administrative burden (paperwork) and cost through a more efficient, uniform program

- Reduce likelihood of unrecoveuioorable claims moving forward

- Identify current uncollectible issues; recommendations on getting the claims recovered

- Assist in developing consistent Reinsurer security procedures and protocols JLT Re – Approach Detail Activities Deliverables Activities Discovery & Diagnostic
2 - 4 Weeks Quantify the Opportunity
4 - 6 Weeks Develop Recommended Programme
2 - 4 Weeks - Initial meeting with key JLT Re and client contacts

- Review data and client’s book of business

- Understand Fac purchasing process and what guides decision-making

- Assess existing Fac management system(s)

- Review and summarise relevant Facultative coverages (by geography or business unit)

- Understand what Fac is captured in the cat model

- Highlight existing data gaps and provide outstanding information request Deliverables - Current state coverage assessment

- Data gap analysis

- Fac capture audit Activities - Develop Fac spend database

- Evaluate where Fac could provide superior coverage and cost savings given Treaty gaps and Fac coverage overlaps

- Audit claims info vs. what is actually billed

- Develop initial programme enhancements options - Fac purchase decision process map

- Savings opportunities and analysis

- Fac spend database

- Claims audit - Review potential Facultative programme concepts/ enhancements with client management

- Evaluate improvement proposals in terms of costs and benefits (volatility, capital released, ceded ROE)

- Understand the opportunity as it relates to other applicable client specific factors such as potential markets

- Client feedback & direction

- Finalise overall opportunity and improvement concepts before going to market Deliverables - Proposal cost/benefit analysis including treaty impact

-Volatility, capital released, ceded ROE analyses

- PML Analysis

- List of target market suggestions Activities Determine Optimal Execution Approach
2 - 4 Weeks - Develop an overall execution plan including recommended markets

- Develop processes to institutionalise best practices

- Recommend optimal Fac management system(s)

- Begin measuring savings and improvement metrics

- Utilise system of marketing and processing hubs as needed Deliverables - Execution plan

- Measurement scorecard including KPI’s

- Custom best practice solutions for purchasing plans and org structure FPO Analysis Profile of Book/Role of Fac Claims Process - Fac source by line and Fac placement by market

- Make-up of structure (i.e. layers, limits)

- Benchmark/Comparative Analysis

- Effectiveness – how much is paid by Fac categories

- What proportion of premium goes into Fac vs. Treaty
and other solutions

- What is the coverage of Fac vs. Treaty– conduct gap/overlap/impact analysis

- Determine underutilised line, project, market and broker

- Can Fac grow business where underwriting guidelines constrain business writings

- Provide pricing analysis (only for catastrophe) - Claims frequency and severity by line/programme

- Conduct analyses with all loss ratios and breakdown to see how programmes perform

- Focus on difficult claims and compare against past data/trends - Who does the buying/placing of Fac? Distribution of purchases? Is it being purchased on risk drivers (property and casualty)?

- How much are they buying/placing per year by line/programme averages?

- Is there a structured process to source and place Fac? How well is this process followed? Coverage and Buying Analysis (detail by line of business) Value of Current Fac Purchases FPO - Initial Requested Data - What is your Fac reinsurance spend for 2012 ? (By reinsurer would be helpful in determining potentially underutilised markets.)

- How much have your Fac reinsurers incurred and paid in 2012?

- How much aggregate capacity does your Facultative reinsurance provide in 2012?

- How much ceding commission does your Facultative reinsurance spend generate?

- How many policies have Facultative reinsurance in 2012?

- What is the limit profile of the policies where Facultative reinsurance is purchased in 2012?

- Are there a material number of policies that have a policy term which goes beyond 12 months? If yes, please provide details - Does your current Facultative spend reduce volatility?

- Does it reduce cat exposure in critical areas?

- Does it provide commission income to reduce expenses?

- Does it allow you to improve your net retained premium position?

- Do you recover more in losses and commission income than you pay out in premium?

- If not, are you achieving appropriate profit commissions from your counter party partners?
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