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Insurers are increasingly buying reinsurance as protection for their earnings, guided by “risk appetite statements” which optimize capital management and profitability targets, a survey by Willis Towers Watson has revealed.
According to the Global Reinsurance and Risk Appetite Survey Report 2017/2018, 80% of insurers consider their risk appetite statements when defining their reinsurance strategies. This is due to pressure from investors, which make insurers less tolerant of missed earnings targets.
As a result, these firms are moving to more sophisticated metrics, such as return on equity and economic capital.
From the 260 insurers from 51 markets surveyed, 98% have adopted a formal risk appetite, or plan to have one within three years. Companies’ enterprise risk management capabilities have improved, but more progress is needed to achieve their risk-culture goals. Meanwhile, many insurers stated that cyber is their largest risk concern, mostly due to difficulties in defining and managing cyber from both the underwriting and operational perspectives.
“Managing the volatility of underwriting results is of prime importance to insurers, and…
