Customised and Capital Solutions

Helping clients find new ways to meet business objectives

An increasingly complex risk and capital environment is encouraging our clients to explore new ways of managing their balance sheets. The traditional risk transfer solutions remain core, but in the quest to drive stakeholder value, insurance company executives are increasingly willing to consider a range of alternative structuring techniques.

That’s where Gallagher Re’s Customised and Capital Solutions practice comes in. We work collaboratively with our geographic broking teams to understand client motivations before calibrating solutions that support them in achieving their target key performance indicator (KPI) metrics. This is becoming increasingly important as management teams look to deliver value in an incredibly challenging market environment.

Common client objectives include a desire to:

Optimise capital efficiency
Control earnings volatility
Reduce operational expense
Remove management distraction associated with non-core operations

Purposeful customised and capital solutions in our clients’ best interest

By taking the time to understand a client’s core motivations, we are better able to tailor our advice to meet their objectives and help them understand the implications of each available solution.

The types of solutions we facilitate include:

Retrospective solutions

Loss portfolio transfers
Adverse development covers
Lloyd’s reinsurance to close (RITC)
Insurance business transfers

Prospective solutions

Multi-year/multi-line aggregate stop loss and excess of loss
Structured/surplus relief quota shares

Capital solutions

Lloyd’s capital advisory
Funds at Lloyd’s
Alternative capital solutions

Depth of knowledge, skills and experience helps us help you

Our global team of more than 30 professionals operates from hubs in London, New York and Singapore. Leveraging the best of Gallagher group, our team has a broad range of skillsets — broking, actuarial, capital, accounting, claims and project management — that can be deployed in support of our client’s transaction.

We work with a product neutral approach, and have licences to transact reinsurance broking, legal finality via novation, or entity sales through our Securities business.

Gallagher Re’s high rate of deal-flow allows us to maintain strong relationships with all key counterparties. We leverage our executive level contacts to optimise client outcomes.

Customised and Capital Solutions case study: Loss Portfolio Transfer

A European monoline mutual providing workers’ compensation insurance requested a long-term capital management tool because exposure to long-duration, prior year, loss reserves resulted in a significant capital charge allocated to reserve risk. The client was keen to explore ceding a proportion of its prior year exposures to reduce the associated charge, and wanted the capital management tool to facilitate:

The proactive management of their Solvency Capital Requirement (SCR)
A cost-effective and flexible solution that the client can adjust as needed
A solvency ratio uplift of minimum 25% at an equivalent cost of capital cheaper than debt

Our solution was a Loss Portfolio Transfer structure with the following elements:

A 30% cession of all reserves from accident years aged 2 years and older
Funds and claims control are withheld
Commutation option offers 100% PC from fund withheld account to cedent within the first three years
Cancel and rewrite facility to alter exposure composition after the first year

The main benefits of this solution met the client’s strategic priorities of capital relief (high priority), volatility protection (medium) and operational efficiency (low).

Approximately 25% solvency ratio uplift
Effective cost of capital lower T2/debt equivalent
Reinsurance solutions also provide volatility protection in case of worsening claims experience
Cancel and rewrite structure provides flexibility to adjust in scope exposures to flex capital benefit
Long-term capital partner with AA-rated reinsurer
Claims control retained