Re Square was commissioned by a large reinsurance broker in 2023 to upgrade its Industry Loss Warranty (“ILW”) capabilities via better use of technology.
ILWs are retro-like protections that respond to industry losses, rather than the cedant’s own losses. Some protection buyers may use common, “off-the-shelf” structures, e.g. a contract that pays its limit if there is a named storm with at least $50bn in insured losses in Florida. Other buyers may tailor State or County level weighting factors to mimic their own exposures and minimise basis risk.
Re Square built a web-based, analytical ILW marketplace which transformed its client’s ILW offering:
Pricing of off-the shelf-ILW structures, including those with binary payouts, occurrence layers, aggregate layers, corridors and franchises, was made possible in real time using a clickable US State map
The optimisation of State and County factors for more structured cases was automated, with cedant exposure uploads (ELTs, YLTS) forming the analysis starting point. Use of cross-validation data science techniques improved the fitting process, with lower basis risk to the broker’s clients. Runtime speed was dramatically increased via reformulating the optimisation problem
Underwriting information, modelling output and quotes were made shareable within the application via user permissions. Thus, the broking process was digitised, allowing the capture of valuable market data
The application was intuitive and usable directly via brokers, reducing the reliance on actuarial resource
A substantial increase in broking revenues was attributed to use of the application