Lead Forensics


Portfolio Exposure Analysis with Billions of Locations Across Thousands of Cedants

10.07.20 Ben Daines

With emerging markets expected to invest $2.2 trillion in infrastructure annually over the next 20 years with $920 billion per annum available to long-term investors, including (re)insurers, this sector no longer deserves to take a back-seat when it comes to portfolio diversification.

Emerging markets represent a sizeable opportunity for reinsurers looking to play their part in this expansion, which is expected to increase exponentially over the next decade. Deloitte also cited SwissRe and Reuters’ expectations that the reinsurance market in Asia is projected to grow with a compound annual growth rate of circa 7% compared to more established markets like the US where growth is expected at only 0.4%. In this blog, we look at portfolio exposure analysis and how insurance technology can drive portfolio diversification.

In a late 2019 reinsurance survey of the reinsurance market carried out by Artemis, respondents chose Portfolio Diversification as the second top priority as we move into 2020. Full disclosure – this survey was carried out in a pre-COVID-19 world, however, the onset of this new challenge has only strengthened reinsurers resolve in pursuing portfolio diversification, and in turn innovative insurance technology.

Historically, reinsurers’ quest for diversification has in part been driven by historically low-interest rates, with Deloitte noting “due to increased interest rate risk and income volatility, there is pressure on internal budgets, KPI’s and ratios.”

This being especially true of hedge fund reinsurers who are booking lower returns than their counterparts on the reinsurance index % and highlighted by S&P in their September 2019 report.

This scenario forces global reinsurers to seek new opportunities in emerging markets to drive premium growth and increase market share.

As the world begins to lift Covid-19 restrictions, many countries are starting to look at ways to kick start their paused economies and to adapt to the ‘new normal’ way of doing business. Emerging markets are particularly looking at key infrastructure projects as a way to increase GDP.

Emerging Market Challenges in Portfolio exposure analysis

There are obvious challenges when entering new or emerging markets and considerations that have to be made, such as taking into account local market conditions, customs and variations in customer requirements. What works in the U.S. or Europe won’t necessarily translate to success in new markets.

Many emerging markets also have protectionist measures in place, creating a barrier for those looking to enter their market. However, as insured values continue to rise and risk complexities grow, state-backed reinsurers and the governments who ultimately underwrite the losses may be willing to cede some of their exposure to privately backed reinsurers.

We all know the importance of using modelled data when assessing re-insurance risks. It is traditionally through such models that reinsurers have relied upon to analyse their exposures, especially when portfolios run into the hundreds, if not billions of locations, spread across thousands of cedants. Unfortunately, many of the emerging regions aren’t covered extensively by the models and even where models are deployed, they are not always representative of actual incurred losses.

While models have their function, they also have their limitations. For example, they require significant data cleansing and processing to enable the model to represent the peril(s) sufficiently. Users must be careful not to over or under burden the model with information for fear of adding additional uncertainty into the calculations. There is also likely to be only limited historical records available for some of the emerging markets, meaning broader interpretations of the models are required.

Arguably, one of the biggest problems faced by models is their ability to adequately assess how much vulnerability a risk will have. Post-hurricane Sandy, PwC noted, “one of the issues identified by storm surge was the positioning and protection of emergency generators. Where these were located in a basement without specific flood protection, it took far longer to recommission than those where the generators were in the upper-level service pods.”

Entering new markets and staying one step ahead of the competition requires gaining an edge in analytical capabilities to extract new insights into your portfolio that will feed the opportunity to innovate and develop new products. Portfolio exposure analysis, coupled with enhanced reporting capabilities, enables reinsurers to fully understand the worst-case scenarios of taking on new and emerging risks.

Back to the Artemis reinsurance market survey, ‘technology’ was voted as the third most important thing for Reinsurers going into 2020.

When it comes to managing exposures, direct insurers have long been able to compliment CAT modelling data with analytics and aggregation tools such as Exact, our insurance exposure management software. However, due to the volumes of data inherent with treaty reinsurance, this level of granularity has not been available to the reinsurance market.

How does insurance technology drive portfolio diversification?

The world and the way of doing business have dramatically changed following Covid-19. The global insurance sector has adapted quickly to working remotely, and the adoption of insurance software to get business done has gone relatively smoothly. There is a window of opportunity for those carriers who have resisted change to processes to adopt more modern and automated processes in regard to (re)insurance exposure management and grab hold of opportunities within new and emerging markets.

In order to diversify your portfolio, you first have to understand the properties which make up the portfolio in the first place. Exact Max, AdvantageGo’s dedicated reinsurance exposure management tool has a customisable dashboard, which can be tailored for each Underwriter, or Exposure Analyst, allowing them to see what is most important to them.

An interactive map is used to display all of the locations contained in your portfolio, even where your portfolio runs into the billions of locations, spread across thousands of cedants. This enables you to easily identify hot and cold spots within your portfolio. The surrounding charts then provide key information about the risks displayed on the map. For example, a user can see the geocoding granularity, the number of stories, the ground elevation as well as granular information on the occupancy and construction make-up of the locations. Essentially any information being captured in the underlying data can be served up within your dashboard.

The dashboard allows you to perform in-depth portfolio exposure analysis on a single cedant or multiple cedants as well as analysing your entire portfolio in real-time.

This example is just one of many on how Exact Max can help you eliminate manual processes, so you can make informed decisions, much more quickly, leaving you free to focus on the high value tasks and expand your business where it matters.

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