1. A conscious uncoupling …
Should your model go its separate ways?

2. The disclaimers This is certainly not a Solvency II presentation.
It needs to be tempered, where required, by the need to fulfil regulatory requirements.
Do not follow me blindly.

3. Goal of this presentation
To have you think more broadly than the “Capital Model”
(and to have no more bullet points)

4. Uses of a capital business model
Portfolio optimisation
Reinsurance optimisation
Capital calculation
Business planning
Risk appetites
Scenario testing
Investment optimisation
Pricing
M&A assessments

5. Use quadrants Run often Embedded Secret sauce Simple Complex
Opportunity cost
Cumbersome and dusty
Run seldom

6. Use scale Run often Embedded Secret sauce Pricing
Investment optimisation
Business planning
Reinsurance optimisation
Risk appetites
Portfolio optimisation
Scenario testing
Simple
Complex
M&A assessments
Capital calculation
Opportunity cost
Dusty
Run seldom

7. Reporting scale Implications based Results based Risk appetites
Portfolio optimisation
Reinsurance optimisation
Scenario testing
Capital calculation
Business planning
Investment optimisation
Pricing
M&A assessments
Motor & Liab 1
Motor & Liab 2
Motor & Liab 3
Motor & Liab 4 1
391.85
383.37
189.78
901.31 2
965.64
478.08
23.06
25.06 3
224.41
839.41
883.74
469.80 4
918.73
490.62
51.14
959.05 5
9.91
821.93
776.17
427.06 6
777.24
968.44
690.63
216.45 7
620.87
289.75
170.00
505.31 8
109.67
875.46
875.49
201.24 9
563.98
179.93
210.66
655.31 10
915.34
81.85
70.79
457.67 11
578.82
788.00
447.92
171.49 12
991.25
932.46
334.87
277.01 13
434.69
530.43
251.88
44.08 14
180.08
420.14
889.36
496.22 15
131.94
986.28
376.79
996.65 16
877.13
606.76
751.70
403.07 17
358.70
121.45
624.93
12.17 18
986.21
58.99
300.12
863.97 19
572.55
958.79
95.25
351.89

8. Reinsurance optimisation
Maturity scale
Reinsurance optimisation
Early
stage
“The capital gross and net of reinsurance is assessed, with the difference attributed to "reinsurance".”
Mid
“The impact of each of the layers in the reinsurance programme on the capital and volatility position of the business is calculated. Metrics by layer and by programme are calculated, such as the probability of vertical and horizontal exhaustion, and the utilisation of the layer at various return periods.”
Mature stage
“The model is used to evaluate a "more optimal" reinsurance programme taking into account the key metrics and restrictions. The utilisation of the reinsurance within each reinsurance contract or layer is assessed, and is used to evaluate the extent to which the contract or layer is useful. A statistical methodology is used to identify the key layers contributing to the reduction in capital, which become the "core" layers or programmes, with the non-core layers being rigorously tested for value add and potentially being discarded.”

9. Maturity scale Early Mid Mature Risk appetites Portfolio optimisation
Reinsurance optimisation
Scenario testing
Business planning
Investment optimisation
Pricing
M&A assessments
Capital calculation

10. Implications of “use test” in Solvency II
Capital calculation
Solvency II internal model
Capital calculation
Pricing
M&A assessments
Pricing
M&A assessments
Business planning
Reinsurance optimisation
Business planning
Reinsurance optimisation
Scenario testing
Investment optimisation
Scenario testing
Investment optimisation
Risk appetites
Portfolio optimisation
Risk appetites
Portfolio optimisation

11. An alternative (I): Risk components
M&A assessments
Business planning
Pricing
Scenario testing
Capital calculation
Investment optimisation
Risk appetites
Reinsurance optimisation
Portfolio optimisation

12. An alternative (II): Risk principles
M&A assessments
Business planning
Pricing
Capital calculation
Well defined, comprehensive, detailed set of risk principles dictating how risk within the business is quantified. Unified technology for assessing risk
Scenario testing
Investment optimisation
Risk appetites
Reinsurance optimisation
Portfolio optimisation

13. Competitive advantage
Build a capital model consistent with the market template, use it for all decisions
Find material hidden risks, dependencies or feedback loops that others haven’t
Run your model in a tighter, more robust environment where you can get results to where they are needed faster

14. Competitive advantage
The 95%
The winner