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The Australian insurance and reinsurance market has been through a tumultuous period in recent years, with the rise and fall of local international

reinsurance underwriters, the ongoing consolidation of brokers and insurers, the rise in public ownership of large general insurers and their ongoing expansion into Asia, and the well-publicised failure of HIH.

Driven at least in part by the HIH failure, but also by the ongoing non-profitability of the market up to 2002, regulation and legislation have been combined to bring the primary industry up to a level of corporate governance and risk management that is world-leading. That has coincided with improved market discipline and claims incidence that has resulted in three years of underwriting profit, and thus profitable returns to shareholders.

The larger general insurers are raising their level of focus on reinsurance management and are looking to implement rigorous processes and systems to support the operational and compliance elements of this critical business function.

Environmental Factors Impacting Reinsurance ManagementThe primary driver of an increased focus on reinsurance management has been the implementation of regulatory standards and risk management processes by the Austra-lian Prudential Regulation Authority (APRA), which aim to provide greater certainty of cover and recoverability and recognise the link between reinsurance assets and capital requirements.

Approved actuaries in Australia are now required to comment in the Financial Condition Report they issue for each general insurer on the efficacy of an insurer’s reinsur-ance programme and on the processes and controls in place to ensure effective management of that programme.

Other factors impacting the market are less tangible, but also have an important impact on the operational aspects of reinsurance management. They include:• Primary insurer consolidation – mergers, acquisitions

and restructures;• Domestic and international reinsurance broker consoli-

dation and restructure;• Increasing demand for commutation of longer-tail

historic portfolios; and• The emergence of asbestos-related and other liability

claims.

Three Main Drivers of Process Change Compliance regulations require insurers to confirm

a formal process for managing reinsurance issues, to fully document their reinsurance management strategy (REMS) annually and to record and declare the purchase and placement of all material reinsurance contracts on an ongoing basis.

Structural issues have had a major impact on the capacity of insurers to retain key business resources and knowledge of the corporate history of historic claims and reinsurance covers.

Business issues are prompting insurers to investigate the reinsurance asset that now exists within their organisa-tion, from their own and any acquired entities, to support claim reserving, reinsurance recoveries, debtor manage-ment and reinsurer performance analysis.

Given the often complex nature of larger insurers many of which have multiple regional entities that may have distinct reinsurance programs, or may participate in broader group-wide arrangements, it is often hard for management to gain an overall view of the performance of a reinsurance program, and of the financial status of any particular relationship within it.

An integrated approach to the drivers outlined above will give companies the best chance of achieving the re-quired objectives.

Reinsurance Management Systems For General InsurersMr Peter Coates, CEO of Axiom Asia Pacific, and Mr Suresh Dhanushkoti, CEO of iMantras, highlight the key issues facing ceding insurers in the Australasian market in managing outward reinsurance and consider ways to manage these issues more effectively.

Figure 1: Business Benefits of Reinsurance Compliance

Mr Peter Coates

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For more information contact Peter Coates email Peter.Coates@axiomcc.com.auTel 612 9216 1600 Fax 612 9216 1616

www.axiomcc.com

Axiom Asia Pacific Pty Limited

We deliver Technical and Financial Client Focused Solutions

for the global insurance and reinsurance marketTechnical• reinsurance management• claims management• run off & commutations• audits & inspections• reinsurance systems support

Consulting• management consulting• reinsurance compliance• APH claims reserving• finality & exit strategies• portfolio evaluation

Information And Workflow ManagementDue to the importance of communication and interac-tion among different areas of a general insurer, a robust information management and workflow environment is desirable to ensure that:• Underwriting provides the appro-

priate supporting information;• Claims provide the relevant loss

information;• Finance ensures the correct ac-

counting treatment for premiums, claims and recoveries;

• Actuarial has access to the relevant data to support reserving analy-sis;

• Reinsurance integrates and man-ages the transaction from strategy to execution; and

• A formal sign-off and audit trail is maintained for all key stages of the process.None of the activity shown in Fig-

ure 2 is overly complex or difficult to implement. It requires proactive com-munication and a process framework to ensure all the steps are executed

and formally recorded. The longer and more complex the corporate history, and the broader the range of products involved, the more likely it is for gaps in the relevant in-formation to exist within the company.

Figure 2. Generic Compliance Process Flow For An Australian Regulated Cedant Company

AIRreinsurance

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AIRreinsurance

For more information contact Peter Coates email Peter.Coates@axiomcc.com.auTel 612 9216 1600 Fax 612 9216 1616

www.axiomcc.com

Axiom Asia Pacific Pty Limited

We deliver Technical and Financial Client Focused Solutions

for the global insurance and reinsurance marketTechnical• reinsurance management• claims management• run off & commutations• audits & inspections• reinsurance systems support

Consulting• management consulting• reinsurance compliance• APH claims reserving• finality & exit strategies• portfolio evaluation

Reinsurance Management SolutionsA survey of property and casualty insurance carriers in North America revealed the following:• 50% of companies use a manual

process, supported by Microsoft Excel or Access as their platform for managing reinsurance;

• Even when a company has a dedicat-ed ceded reinsurance department, other departments still do a signifi-cant amount of the processing;

• Only 17% of those interviewed had comprehensive reinsurance manage-ment solutions in place but even those companies were not achieving the benefits of automation, possibly caused by “the scarcity of people to effectively use the technology”;

• Of companies with a comprehen-sive solution, defined as having a detailed reinsurance sub-ledger and automated data feeds to primary and general ledger systems, only 16% were able to process all their ceded transactions on the system, with the rest processing only part of their ceded transactions.

Figure 3: Reinsurance Management Solution Architecture

Implementation of a formal reinsurance management solution, as illustrated in Figure 3 can provide a company with a consistent, single repository of business information, robust processes and controls that can assist in reaping the benefits outlined previously in Figure 1, and give manage-

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ment ready access to real-time reporting on reinsurance financials and counterparty risks.

Characteristics Of An Effective Reinsurance Management SolutionA typical implementation of a reinsurance management solution will include a combination of IT and business process aspects, and will generally possess many of the following attributes:• Improved process and controls Define and implement consistent processes with uni-

form controls across all entities. Users accessing the reinsurance management solution should be subject to security and access controls, with authorisation levels for transactions governed by corporate practices.

• Automated cession of premiums and claims Integrate the core policy and claims insurance ad-

ministration systems with a solution through a set of automated interfaces to minimise leakage, facilitate faster claims recovery and increase receivables.

• Consistent, group-wide position Link reinsurance sub-ledgers from all legal entities to a

global corporate general ledger. Automating reinsurance ratings also enables accurate provisioning of capital and better use of corporate reinsurance assets through improved accuracy in reserving.

• Global solution with local support When an insurer is operating in multiple geographies,

it is important to support multiple languages, multiple currencies and compliance with local statutory require-ments (for example, goods & services tax, reporting to local regulators).

• Retain full context of the information The reinsurance policy and claims information must

retain full contextual information such as documents and other unstructured information. The solution must be able to seamlessly provide access to all such informa-tion.

• Flexible reporting Ensure the solution not only supports statutory and cor-

porate reporting but also facilitates business intelligence and analysis such as leveraging reinsurance buying, profitability analysis, concentration and counterparty risk analysis.

• Future proof the solution The solution must be able to provide a sound platform

for reinsurance e-business initiatives, such as linking to trading partners (brokers and reinsurers) using stan-dards such as XML and ACORD.

• Support for legacy information Any solution must support automated conversion of

legacy contracts and claims information. • Minimised total cost of deployment Centralise the system deployment and provide browser-

based access to all users, whether internal or external partners.

In SummaryGlobal standards for contract certainty and financial risk management are providing the impetus to general insurers to upgrade their processes and controls for reinsurance management.

As larger companies look to expand through acquisi-tion and growth across the region, it will become more essential to implement systems that are fully integrated with all business functions that can provide a consistent overview of the financial position, and support compliance requirements.