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Earnings volatility drives reinsurance decisions

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Reinsurance is increasingly important as a tool for reducing earnings volatility, as investors pressure insurers to meet profitability targets, a Willis Towers Watson survey finds.

About 80% of insurers consider their risk appetite statements when defining reinsurance strategies, as they optimise capital management and profitability targets.

“Managing the volatility of underwriting results is of prime importance to insurers and reinsurance strategy measured by risk appetite is key to that,” Willis Re CEO James Kent says.

“This is particularly relevant for public companies where perceived volatility can severely impact share price.”

Changes to the global regulatory environment have increased the emphasis on capital measures and targets for insurers, which are also moving to more sophisticated performance metrics such as return on equity and economic capital.

The survey also shows cyber is insurers’ main risk concern, due to difficulties defining and managing the issue both from an underwriting and operational perspective.

Willis Towers Watson surveyed 260 executives in 51 countries covering life and general insurance. More than three-quarters of insurers surveyed have formal risk management statements in place, while 22% plan to adopt one in the next three years.