Achieving growth through innovation
The increasing complexity of the re/insurance world combined with the growing sophistication of its participants is a perfect fit for Aon ReSolutions, a team that resides within Aon Benfield but which designs and executes transactions that utilise the full expertise and offerings of the Aon group.
Andrew Matson, managing director of ReSolutions, says that a number of holistic initiatives the unit is working on combine the functions of Aon Risk Solutions, Aon Benfield and Aon Hewitt in order to optimise capital structures and ensure effective distribution.
“The traditional role of the reinsurance broker is to source reinsurance capacity for the transfer of risk from existing insurance products. However, ReSolutions is different in that we also reverse-engineer our transactions,” explains Matson.
“This means that we start by identifying demand for an insurance product and create a reinsurance facility to provide the capacity. Then, we use the retail distribution capabilities of Aon to take the product to market. By securing the reinsurance capacity in advance, we find that we have the necessary support to bring a range of innovative products to the marketplace.
“Further to utilising Aon’s capacity and distribution capabilities, we also draw expertise from many areas of the firm, including actuarial and catastrophe modelling services, rating agency advisory, and the many resources of Aon Hewitt in areas such as investment strategy and outsourcing.”
Matson says that while many of the big players operating out of Lloyd’s or Bermuda were once predominantly monoline, driven by regulatory requirements such as Solvency II the situation is changing and bringing opportunities for the ReSolutions team. Companies are increasingly looking to package products in a more diverse way.
“Companies under Solvency II work out their capital loadings based on the diversification of their income,” he adds.
“Additionally, we are noticing that insurers and reinsurers are becoming more open to global diversification, and are therefore seeing a trend moving towards Lloyd’s because of its licensing capabilities.”
Matson notes that clients often approach ReSolutions with a problem driven by function of the marketplace. A good example of this is the professional indemnity product for primary solicitors the team launched recently, which uses markets not traditionally active in this space.
Other innovations may be driven by changes in the economy.
“For example, recent tax changes prompted a demand for a high net-worth life product for offshore individuals. That was quite difficult to satisfy, but again by drawing on multiple resources we were able to develop a solution.” he says.
There has been a noticeable shift in the market in recent years with companies that had traditionally been property-cat specialists beginning to gravitate towards new lines where they haven’t historically been present. As companies move outside their comfort zones, ReSolutions can help guide them.
“We show them opportunities that they may not have considered in the past due to a perceived lack of resource within their firms, but because our distribution reach is so large and because the Aon brand is so strong, we are able to create successful ventures for our clients.” Matson adds.
“Not only do we create new sources of revenue generation for our clients and our firm, but in developing innovative new products we create a research and development platform to interrogate and find out what the market’s really looking for.”
Kurt Cripps, broker and global head of weather re/insurance at ReSolutions, says the unit has many innovative transactions in its pipeline.
One of its most recent deals was with SHY Aviation, one of the fastest growing private charter aviation brokers in the world. Enlisting the expertise of Aon Benfield actuaries, ReSolutions developed a product to indemnify SHY against the instances when its charter flights have to be cancelled—for example, due to mechanical issues, weather conditions, or lack of flight crew—thereby limiting the potential cost burden for the firm.
In developing a customised insurance product for SHY, ReSolutions sourced capacity in the Lloyd’s market to provide cover for 130 percent of the cancellation cost, allowing SHY to offer a ‘same or better’ aircraft to clients in the event of a cancellation of their original charter flight.
The outcome is that SHY has been able to expand its business into larger and more complex charters.
“Many of our transactions are aimed at assisting clients to remove potential exposures from their balance sheets.” Kurt Cripps
Another innovative ReSolutions deal involved a large chain of public houses, which during the 2014 FIFA World Cup purchased weather protection through ReSolutions against excessive rainfall for all of its pubs in the UK. A seasonal weather insurance product of this nature is unique, according to Cripps.
Cripps notes that commercial clients on the insurance side of the business are becoming much more aware of the risk on their balance sheets. He says that manufacturers, for example, are realising that the warranties they offer, often spanning five years or more, could incur risk if a black swan event or systemic loss occurs.
“Many of our transactions are aimed at assisting clients to remove potential exposures from their balance sheets. For instance, we recently sourced 15 years of extended warranty cover for the millions of home communications hubs that will soon be introduced to homes as part of a UK government drive to make smart energy technology ubiquitous in households, which is groundbreaking,” he says.
Actuarially speaking, the majority of ReSolutions’ products are brand new and highly customised, so in order to justify their development, ReSolutions needs to be able to actuarially prove models, distribution, minimum take-up rates and pricing.
Even if a client cannot obtain the necessary data for a new product, ReSolutions can work with them to create models based on similar products and work with the carriers to ensure they are comfortable with the forecast rates.
“Given the size and scope of the Aon group, we are in a strong position in that we have access to so many capabilities to help our clients,” Matson concludes.
“The breadth of resource across analytics, consultancy and capacity generation that we’re able to deploy on behalf of new clients is hugely powerful compared to that of our peer group.”
Andrew Matson is managing director in Aon ReSolutions. He can be contacted at: firstname.lastname@example.org
Kurt Cripps is a broker and global head of weather re/insurance in Aon ReSolutions. He can be contacted at: email@example.com