High Stakes

For actuaries and other risk managers in the insurance and reinsurance industries, these are exciting times.  Perhaps too much so!

Let us count the ways:

  • Equity markets are frothy, interest rates continue at historic lows, and “implied vols” are back down around pre-crisis levels.

  • The Fed continues to taper its quantitative easing to about 65% of last year’s levels, while the unemployment rate is now below 7% and inflation is only about 1%.

  • Solvency standards are in flux globally.  Details for major jurisdictions are very much under debate and will probably vary, but we seem to be headed toward a world of computationally intensive and data-driven dynamic solvency assessments based on assumptions sets and stress tests that are attuned to economic conditions and the full range of product, investment, and operational risks across the enterprise.

  • The reinsurance markets, an important and enduring part of the insurance industry’s risk management arsenal, face their own challenges:  continued consolidation among major life reinsurers and a decade of increasing retention rates by direct writers; meanwhile, the P&C reinsurance market is bearing the brunt of competition from non-traditional capital markets sources, creating pressure to expand beyond well-trodden markets while maintaining underwriting discipline.

  • Private equity investors have increased their presence in the life and annuity market, often with the aim of gathering assets to manage, prompting speculation about how their investment horizon and business strategy may contrast with that of traditional insurance shareholders.

  • Some inforce annuity products have become so problematic for insurers that they are offering to “buyout” policyholders in cash or in exchange for a different product.  This for long-term guarantee products that could be inforce for decades!  Some insurers have resisted this urge, noting the irony of these “buyouts” relative to their usual objectives of positioning themselves as long-term solid.

  • On the heels of adverse results in the variable annuity industry since the crisis, the phrase “policyholder behavior risk” has entered the lexicon of the C-suite and equity analysts, heightening the importance of actuaries and complex data analytics.  More broadly, risk management decisions are made much higher in the organization and with much greater collective scrutiny and strategic thinking than in years past.

High stakes, high degree of difficulty, and high visibility!

Are you and your company going it alone?  Do you have the internal knowledge and bandwidth needed to synthesize complex market and risk dynamics, and develop and implement appropriate risk management programs for your company?  Are your plans based on stale information and techniques, subject to internal biases or blind spots?  Are you connected with the right potential counterparties globally for various types of risks, including emerging risks such as longevity and policyholder behavior?  Do you know what you don’t know?  Do your competitors?

At Ruark, we help our insurance company clients face these difficult issues head-on, armed with wisdom from successfully completing bespoke risk management projects since 1998, a strong reputation and deep connections across the rapidly-evolving sectors of the insurance and reinsurance industries, and a combination of advanced technical and data analysis skills and creative business development acumen.  These efforts are complemented by the actuarial consulting services and industry-leading experience studies of policyholder behavior performed by our affiliate Ruark Consulting.

In times like these, don’t go it alone or with the usual +1.

+Ruark