A growing accumulation of risks—known and unknown—are a factor of life for most property/casualty insurers. In addition, having full knowledge of the exposures on insurers’ books is an illusive concept at best.  There are also times when an insurer chooses to, or is forced to, accumulate and concentrate exposures beyond its risk selection and risk management capacities.

This is where a properly designed and executed reinsurance program enters the picture, notes Boston-based consultancy Celent. In a new report, “Ceded Property/Casualty Reinsurance Solution Spectrum,” Celent outlines the issues and challenges faced by P&C carriers in choosing a broker/reinsurance partner, and once chosen, how to effectively execute on the plan.

Celent says that execution includes accurately recording the structure of each reinsurance agreement, tracking claims, monitoring attachment points, creating and submitting bordereaux, and identifying and managing recoverables, often over a multiyear period.

“Some insurers have successfully managed their reinsurance program using worksheets and word processing programs,” notes the report. “Other insurers thought they were successfully managing their programs, only to discover that, at best, they could not provide accurate snapshots and projections to senior management, investors, and rating agencies. Still other insurers discovered hundreds of millions of dollars of unrecoverable reinsurance recoverables, or dubious out of compliance or illegal reinsurance contracts.”

For all of these reasons, there is increasing interest among primary insurers in reinsurance solutions that provide recordkeeping and execution capabilities to make reinsurance programs provide the value they were designed to do. In its report, Celent profiles 10 ceded reinsurance solutions from nine vendors. The report looks at the solutions' functionality, technology, customer base, and geographic footprint, and covers the six core elements comprising a ceded reinsurance system: contract administration, underwriting support, a premiums and commissions calculation engine, a claims calculation engine, technical accounting functionality, and financial accounting functionality.

"An insurer looking for a ceded reinsurance solution needs to understand its own business drivers as well as how prospective vendors' technology responds to those drivers," says Donald Light, senior analyst with Celent's Insurance Group and author of the report.

Key findings of the report include:

• A ceded or outward reinsurance solution supports the specification and use of reinsurance contracts by primary insurers. It should cover all types of reinsurance agreements: treaty and facultative, proportional, and non-proportional.

• A ceded reinsurance system has six core elements: contract administration, underwriting support, a premiums and commissions calculation engine, a claims calculation engine, technical accounting functionality, and financial accounting functionality.

• The report profiles 10 ceded reinsurance solutions from nine vendors: CSC, Delphi Technology, Effisoft, Prevail, SAP, Sapiens, StoneRiver FRS, StoneRiver URS, SunGard, and TCS. The report also provides information about each vendor's client base and how those clients are segmented by size and by geography.

• A few vendors have recently modernized their platform to more modern technology, others are in process, and yet others are considering such a migration. In the short run, this appears to pose a trade-off to an insurer seeking a reinsurance solution: does it choose a vendor with less modern technology and with a large installed base (and more experience addressing customers' issues)-or does it go with more modern technology and a smaller customer base? Add in geography, and the size of the customers (as a crude proxy for the complexity of a given reinsurance program) and the decision becomes complex.

• An insurer needs to understand: 1) Its own business drivers (including its reinsurance program's objectives and operating model). 2) How prospective vendors' technology (current and future) responds to those drivers and fit into its own current and future technology environment. The good news is that there are vendors and solutions that will meet nearly any insurer's search criteria

Celent notes that there is considerable diversity among the ten solutions described in its report—and plenty of complexity when processing all the feature/functionality offered. Some, with the largest market shares, also have the oldest technology platforms. Other solutions that have come to market more recently have more modern platforms but generally smaller installed bases. A few vendors have recently modernized their platform to more modern technology, others are in process, and yet others are considering such a migration.

In the short run, notes the report, this appears to pose a trade-off to an insurer seeking a reinsurance solution: does it choose a vendor with less modern technology and with a large installed base (and more experience addressing customers’ issues)—or does it go with more modern technology and a smaller customer base? Add in geography, and the size of the customers (as a crude proxy for the complexity of a given reinsurance program) and the decision becomes complex.

Celent notes that the short answer is that there is no short answer.  Instead, it suggests that an insurer be fully apprised of:

• Its own business drivers (including its reinsurance program’s objectives and operating model).

• How prospective vendors’ technology (current and future) responds to those drivers and fit into its own current and future technology environment.

“The good news is that there are vendors and solutions that will meet nearly any insurer’s search criteria,” notes Celent.

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Corrected November 16, 2010 at 10:28AM: yes