Evaluating strategic underwriting options from a financial perspective

Anyone who is interested in understanding the financial dynamics of an insurance company. While the focus of the course will be underwriting it will also cover the investment and capital management sides of the business so it will be of interest to people from all parts of the business.

The programme is intensive but highly interactive, and will encourage participation through exercises and case studies that the delegates will solve individually or in small work-groups.

While no finance knowledge is assumed some prior understanding of finance will help.

It is assumed that participants are familiar with Microsoft Excel. While the specific Excel skills required will be covered during the course it will be expected that participants already have an understanding of how Excel works and have used it previously.

Set-up session (choose one)
Monday, 28 February 2022, 09:00 – 10:00 CET or
Wednesday, 2 March2022, 09:00 – 10:00 CET

Training sessions
Monday, 7 March 2022, 09:00 – 13:00 CET
Tuesday, 8 March 2022, 09:00 – 13:00 CET
Wednesday, 9 March 2022, 09:00 – 13:00 CET
Thursday, 10 March 2022, 09:00 – 13:00 CET
Friday, 11. March 2022, 09:00 – 13:00 CET

EMEA and Asia friendly time zone

The event may be photographed, videotaped, filmed and /or digitally recorded. You consent to Swiss Re's use, free of charge, of any memorialization of the event in which you may appear for any Swiss Re publication or promotional purpose.

Please choose one of the two sessions:

Monday, 28 February 2022, 09:00 – 10:00 CET or
Wednesday, 2 March2022, 09:00 – 10:00 CET

In these onboarding sessions we do a quick tech check with all participants, introduce our facilitator team, present the programme overview and answer any questions you may have.

Session 1: Excel fundamentals

• Setting Excel up for financial modelling
• Using keyboard shortcuts for greater efficiency

The course will use Excel as a tool for enabling participants to develop a greater understanding of the strategic underwriting issues faced by insurers.  While the necessary Excel skills will be covered in each module as appropriate this first session gives some fundamental tips on using Excel efficiently.
 

Session 2: Accounting fundamentals

• Overview of the three financial statements
• How the three financial statements are linked

Since the course will be looking at the role of underwriting from a strategic basis it is important to be able to place it in the broader context of the company’s overall performance.  In order to do this it is necessary to see how the three key areas of underwriting, investment and capital management influence financial performance.
 

Session 3: Solvency fundamentals

• The reason why capital is needed
• The three major sources of risk
• The two major types of capital

Before looking into the details of the regulatory framework this session explains the key risks an insurer faces and the consequences of not managing them appropriately.  We give an overview of the major capital management strategies which will be developed in later modules.

Session 1: Preparing to build a financial model

• Setting up cover sheet and log sheet
• Columns layout
• Defining the usable worksheet area
• Formatting options and use of styles for consistency
• Using concatenation and text functions to make labels dynamic
• Making dates dynamic and use of year counters

When using Excel to model financial and strategic alternatives there are some best practice approaches that guide the model building process.  While this session will focus on the specific underwriting issues that the course addresses the principles outlined will be relevant for any financial forecasting model.
 

Session 2: Forecasting underwriting performance

• Set up the model structure
• Link the three financial statements
• Put in balance sheet checks
• Individual lines of business
• Premium growth
• Expenses
• Forecasting claims, reserves and payout patterns

In order to evaluate the impact of different underwriting strategies it is necessary to first build the model that will enable us to construct the best estimate of the underwriting profit of the book based on different product mixes.
 

Session 3: Building different scenarios

• Using Various excel functions to build in scenario analysis e.g. choose, offset, index, match, vlookup
• Using combo boxes and radio buttons as selector switches

Since underwriting results are uncertain it is necessary to consider a range of different scenarios and how the company would be affected.  In this session we introduce the Excel tools that are available to forecast uncertain outcomes and use them to evaluate the impact of different claims experiences.

Session 1: Modelling investments

• Different investment strategies
• Investment leverage
• Return on investments

While the focus of the course is underwriting participants need to understand the relationship between underwriting and investments both in terms of the tail of the business and the capital requirements of different investment strategies.  This session enhances the pure underwriting model built so far to incorporate the investment consequences of different underwriting strategies.
 

Session 2: Introduction to solvency requirements

• Premium risk
• Reserve risk
• Catastrophe risk
• Market risk
• Calculating the impact of diversification

When considering the value created by underwriting activity it is necessary to look beyond the analysis of combined ratios and include the capital intensity of different lines of business.  In order to do that it is necessary to understand how underwriting absorbs capital and how different lines of business have very different capital intensity ratios.
 

Session 3: Modelling solvency

• Underwriting risk by LOB
• Underwriting risk for portfolio
• Using Excel functions to automate impact of diversification
• Market risk
• Calculating own funds

The principles outlined in the previous session are incorporated into the underwriting model enabling participants to calculate the impact on profitability and solvency of changing the product mix of the portfolio.  We will also show how Economic value (an enhanced measure of profitability) can be used to incorporate capital intensity into the assessment of underwriting performance.

Session 1: Introduction to reinsurance

• Quota share reinsurance
• Different commission structures
• CAT cover

Having seen how underwriting activities absorb capacity this session looks at how reinsurance releases capacity by taking away risk.  We show why some reinsurance structures are much more capital efficient than others and how reinsurance affects regulatory capital requirements.
 

Session 2: Modelling reinsurance

• Impact on underwriting performance
• Impact on solvency

The general principles of reinsurance structures are then added to the model so that participants can see how reinsurance affects both profitability and solvency and hence economic value.  By incorporating this into the model it becomes possible to calculate the true cost of reinsurance.
 

Session 3: Evaluating alternative capital structures

• Cost of equity
• Cost of subordinated debt
• Cost of reinsurance
• Using Excel to calculate effective cost over multi year periods

Each capital structure has a different effect on value creation. While reinsurance reduces risk, subordinated debt can increase it.  Each approach also impacts liquidity in very different ways.  Combining these factors with the cost of each structure enables an overall assessment of the relative advantages of each approach to be compared.

Session 1: Modelling financing structures

• Common stock
• Subordinated debt
• Gearing levels
• Impact on financial statements

Having seen the impact of reinsurance and calculating its cost this session shows how equity and subordinated debt can be used to achieve similar objectives.  We consider the advantages and disadvantages of each approach and show when each might be appropriate.
 

Session 2: Carrying out a sensitivity analysis

• Use of data tables
• Evaluating different scenarios
• Optimising the reinsurance and capital structure

No financial forecast is certain. Therefore a model needs to enable the user to assess the range of possible outcomes for key variables. 1 and 2 variable data tables, scenario analysis tools and the use of various switches are explained to give a range of possible sensitivity tools that can be used in Excel.
 

Session 3: Summary of best practice financial modelling

• Key modelling guidelines
• Model structure
• Group questions and answers

This final session consolidates and summarises all the key topics covered on the course and allows time for any particular issues raised by the group that have not been covered so far to be dealt with.