Page 19 - Insurance Times July 2019

Profit Oriented Underwriting Policy to tap local and 4. Capacity Creation by Reinsurance
regional markets of Afro-Asian Third World. Reinsurers provides Capacity as per the need of insurer.
Net Operating Expenses = Capacity = Coverage of all insured perils
Acquisition expenses Maximum 20% - 25%
+ Confidence in Security of Reinsurers/Retrocessionaris.
Management Expenses 5% - 7%
+ Continuity after a Loss Event.
25% - 32%
By providing Capacity to insurers, a reinsurer extends
his own Financial Srength to the risks written by
Combined Expenses Ratio including Incurred Loss Net
insurers and transferred to reinsurers.
Expenses should not be more than 95%. If they exceed
100% there is underwriting loss. 5. Balance Sheet’s Net Premiums
A reinsurance company’s retained premium levels are
Solvency Margint to be increasing Shareholder’s Funds.
almost 85% to 90% as Retro Capacity is shrinking.
Foreign inward business can bring more premiums with
B. Financial Strength Related Underwriting
negative results or with marginal profit.
A new reinsurance company must adhere to following
Investment incomes should absorb underwriting losses.
norms:
1. Minimum Paid Up Capital Base to be kept preferably Retro Protections are with very limited Capacity.
in US$ so that exchange rate fluctuation do not reduce
However, ART protections by Multiline Multiyear
Minimum Paid up Capital.
Financial Reinsurances is a fevourable method. Also,
Minimum Paid Up Capital of New Reinsurer should be Securitisation of Risks by Cat Bonds is also a favourable
more than Normal Minimum Paid up Capital method to protect Retro Portfolio of Reinsurers.
requirements for Direct Insurer in a Market.
6. Net Operating Expenses & Combined Ratio
2. Fixing Net Retentions by not more than 5% Paid Up
Business Acquisition Expenses : 20% - 25%
Capital + Free Reserves. New company will start with
+ Management Expenses : 5% - 7% ) 25% to 32%
no Free Reserve which is to be built in first three
Net Operating Expenses : 25% - 32%
formative years.
Incurred Loss Ratio : 65% - 70%
Net Retention Norms as % of Paid Up Capital + Free
Reserves Combined Ratio : 90% - 92%
Fire 3.5%
If Combined Ratio is more than 100%, there is
Engineering 3.5% underwriting loss.
Misc. Accident 2.5% A new Reinsurance Company can at least control Net
Operating Ratio.
Marine 2.0%
Aviation bare minimum say 0.10%
3. Underwriting Capacity should be about 2% of Paid up
Capital. Free reserves for Sum Insured of any one risk
for treaty business and 4% for Fac Re acceptances.
It should be applied per company or programme basis.

Zonal Accumulations should be closely monitored while
writing risks.

Actual Utilisation of Underwriting Capacity should be
lower than Maximum Amounts of Underwriting
Capacity.

Prudent Underwriting implies CARE-CAUTION-
CONSERVATISM.

The Insurance Times, July 2019 19