Momentum Conference 2012: Review of Workshop D5: The future of financial reinsurance

In a talk aimed at a wide-ranging audience, Nick Ketley gave an informative overview of the past, present and future of financial reinsurance solutions.

As a lesser known topic for the average actuary, Nick started from the beginning, describing the concept of Fin Re and setting out the key motivators for insurance companies entering into Fin Re transactions and the impact such contracts can have on capital, liquidity and P/L. Key to understanding the motivations, he also discussed the merits versus corporate finance solutions, primarily the contingency of the repayment and the limited disclosure required.

He took the audience through the key structural characteristics of a transaction and gave examples of common structures by geography, focussing on the recently announced Bancassurance agreements transacted in Spain by Santander and Caixabank. For those primarily focused on the UK market, it was interesting to note the range of regulatory hurdles Fin Re seeks to overcome in other markets.

Looking to the future, Nick explored the impact of recent crises and Solvency II, which is generally expected to reduce the demand for Fin Re solutions in Europe.

By presenting an overview of the solutions market by market Nick was able to highlight the variations on Fin Re across the world and in doing so highlight the fundamental functions it serves to insurance companies and other financial institutions. This stimulated reflection on how the use of Fin Re elsewhere can be applied to the current challenges facing insurers in the UK. It demonstrated the need for actuaries to be forward thinking and innovative in addressing the capital management challenges insurers may face in the coming years.