Academic journal article Business Economics

Swiss Reinsurance

Academic journal article Business Economics

Swiss Reinsurance

Article excerpt

For those unfamiliar with the insurance industry, reinsurance companies provide insurance to "primary" insurers, the insurance companies that provide individuals with auto, home, and life insurance and businesses with commercial insurance. The primary insurance company transfers risk to reinsurers in exchange for the premiums associated with the risk. The transfer facilitates three things. First, it allows the primary insurers to accept more business from their clients. Second, it distributes and diversifies risks within the global insurance industry. Finally, it allows the primary insurer to accept a larger amount of risk, while retaining less risk on its balance sheet and reducing the chances of insolvency from any one major client or catastrophe. Reinsurers are considered the experts on risk assessment in the industry--we must be to assume risk from other risk management companies. In fact, reinsurers generally supply underwriting and actuarial support to their clients, providing guidance on best practices.

Though the public views insurance companies as deriving their revenue from premiums, they can be viewed as investment funds with contingent liabilities (contingent upon an insured loss event--a fire, earthquake, car accident, etc.). Asset management and asset/liability management are core competencies of all large (re)insurers, since they manage huge asset portfolios derived from the premiums that reside with the insurer until the claims are made.

About Swiss Re and the ER & C Group

The Swiss Reinsurance Company was founded in 1863 after the need for a Swiss reinsurer was made apparent by a catastrophic fire in the town of Glarus. In 2002, Swiss Re earned approximately $20 billion in premiums, and assets were over $100 billion. It is the largest reinsurer of life insurance and the second largest reinsurer of property/casualty (P & C) risk worldwide. Swiss Re is a company that prides itself on its strength of risk management knowledge--our mission is "To be the authority on managing capital and risk."

As head of Swiss Re's Economic Research and Consulting (ER & C), North America, I have responsibility for the North American part of Swiss Re's "sigma" insurance research program. In addition, I manage Swiss Re's North American strategic planning for the Life and Property & Casualty business groups and global strategic planning for our Financial Services business group. Also, I supervise the internal consulting ER & C does for the local business groups. Finally, I act as the chief economist for Conning Asset Management, a wholly owned subsidiary that manages assets of medium-sized insurance companies. Given my background at WEFA, Inc. (now Global Insight), one of my mandates as head of the NY branch of ER & C is to strengthen ER & C's ties to our proprietary asset managers and to provide guidance on macroeconomic forecasting and the analysis of sovereign risk. I am supported in this work by an excellent staff of five--four of whom have Ph.D.s and the fifth a masters degree, all in economics. One is an expert in P & C insurance, a second specializes in life insurance. The three others are experts in financial markets, but also provide support to our life and P & C business groups.

The ER & C unit provides three main services to Swiss Re. First, we publish research on the global insurance markets, sharing Swiss Re's knowledge with our clients and other industry participants. Second, we provide support to the Executive Board for strategic planning and on topical issues about the industry. Finally, we provide consulting services to project teams and senior management within the three business groups of Swiss Re--P & C, Life & Health (L & H), and Financial Services. The clients of the P & C and L & H groups are primary insurance companies, while most of the revenue of Financial Services comes from large corporations that usually have their own insurance companies, called "captives. …

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