Retrospective Solutions

Swiss Re’s Retrospective Solutions team provides effective, customisable solutions for the risks associated with your unresolved non-life liabilities. Retrospective Solutions provide opportunities where reinsurance, portfolio transfer or acquisition may be used to deliver balance sheet relief, capital optimisation and operational efficiencies.

The market trend

In any liability-driven insurance enterprise, reserves can accumulate. New risks are taken on faster than the obligations from the past may be resolved. The resulting reserve leverage can weigh disproportionately and unnecessarily on your financial results. This is particularly true for longer tail lines of business or where greater retentions are used. As reserves grow, the burden on your capital will only continue to increase.

Moreover, the trajectory of the financial & reinsurance world in which we live has rarely been so uncertain. It is virtually impossible to predict the quantum and character of capital requirements, impact on long term investment returns, developments in the legal environment and emerging risks, or ongoing operational and infrastructure needs. In this environment, the recycling of risk is becoming more common and the challenge of achieving buoyant capital adequacy while meeting return expectations is more challenging than ever.

The protection

Swiss Re's Retrospective solutions can protect your company from the risk of adverse reserve development, empowering your capital base to deliver results for your core business.

A retrospective solution is not limited to the reinsurance industry. Swiss Re's Retrospective Solutions team can partner with any entity holding non-life property, casualty and specialty liabilities. Swiss Re has a history of successful engagements with a variety of counterparties whether you are an insurance company, a risk retention group or captive, a corporation with self-insured risk, a public entity or NGO.

Our solutions:

Novations

Novation is a legal transfer of the underlying obligations of a reinsurance treaty and the associated liabilities to a third party. That means, Swiss Re steps into the previous risk carrier's shoes and becomes the new risk carrier of the novated portfolio. As Swiss Re is likely to have existing shares in portfolios, and thus a strong overlap with the portfolio in scope, we know the risks and the portfolio and can therefore derive a price with the benefit of a little hindsight and facilitate an efficient execution.

Our Swiss Re Novation offering therefore enables our partners to transfer reinsurance risks off their balance sheets and free up trapped capital, reduce volatility, increase operational efficiency and focus on growth opportunities.

Swiss Re's wealth of reinsurance expertise, our financial strength and sustainable long-term strategy are all important components in structuring successful Novation solutions.

Interested to learn more and meet the team? Read our brochure and contact us to realise the benefits for your business.

LPT & ADC's

Retrospective reinsurance is used to transfer the economic risk of portfolios of losses that have already occurred, whether the losses have fully emerged or not. The most common retrospective solutions are Loss Portfolio Transfers (LPTs) and Adverse Development Covers (ADCs). For both, the reinsurer provides against losses that may exceed an insurer's claims reserves, in return for a fixed premium.

Loss Portfolio Transfer – The insurer cedes liabilities for all emerging unpaid losses associated with a previously incurred insurance liability to the reinsurer. The transfer may include known and unknown claims reserves. The transferred reserve risk usually involves the timing of claims payments and their amounts up to the policy limit. The original policy issuer remains responsible to policy holders should the reinsurer fail to honour its obligations.

The cedent typically pays a premium that reflects the net present value of reserves it has set aside to cover the transferred liability. Main motivations for the cedent can include ring-fenced legacy risks to improve market valuations, the reduction of capital requirements (regulatory and /or rating agency) for reserve risk and freeing up resources tied to the administration and analytics of non-core operations. Another benefit, under statutory accounting regimes, is that the cedent's surplus increases by the difference between the premium and the amount that has been reserved, improving solvency.

Adverse Development Cover  – The reinsurer indemnifies the cedent company for a portion of a loss on a previously incurred liability that exceeds the cedent's current reserves or an agreed retention level (excess of loss reinsurance). There is typically no cession of the liabilities or the associated reserves, at least for short tail lines of business. As a result, ADCs do not reduce net reserves to the same extent as LPTs. Instead the reinsurer agrees to reimburse the insurer if claims on the designated insurance portfolio exceed the attachment point to a defined limit.

Legal Finality

An insurer cedes liabilities usually through a bulk transfer mechanism (such as a Part VII transfer mechanism) that ensures that the original policy issuer no longer remains responsible to policy holders, but rather the new obligor. The transfer usually takes the form of an LPT without limitation and associated claims handling and operations are handled by the new obligor.

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