How much capital do insurers need?
The cost of capital should decrease as the probability of capital being utilised reduces.
Insurers are increasingly measured or valued using the multiple of their regulatory capital. Managing how risk is capitalised, not just underwritten, will improve RoE and with it the value of the company.
A dedicated SPV is created within our Segregated Asset Company into which a fixed percentage of the insurer’s premiums will flow for 5-10 years.
This SPV’s capital comprises a First Loss layer and further layers constructed to attach at defined probability levels. These further layers are transformed into bonds purchased by capital markets investors. This new investor capital frees up the insurer’s own capital.