Value Based Capital Management is the First and Only Commercially Available Service Created to Measure Risk, Manage Capital and Protect Current and Future Earnings
Willis Re, the reinsurance division of global insurance broker Willis Group Holdings Limited, today unveiled Value Based Capital Management (VBCM), the reinsurance industry’s first and only practical, commercially available service designed to measure risk, manage capital, and maximize franchise value.
Launched at the 2009 Property Casualty Insurers Association of America’s Annual Meeting here, VBCM enables Willis Re clients to answer three key questions: how much overall risk are we taking; how much capital should we have; and what actions can we take to make our firm more valuable? While insurers have traditionally used reinsurance to reduce their underwriting risk, up to now they have had no effective mechanism to evaluate which products best protect their firm’s value. VBCM not only solves that problem, but goes further, offering insurers a holistic tool to measure and address their complete risk profile based on how best to protect and grow franchise value.
Bill Panning, Executive Vice President of Willis Re said: “Willis Re believes that insurers should no longer face the difficult tradeoff between maximizing earnings and protecting against risk,”. “VBCM enables insurers to determine for the first time which particular strategic choices will enable them to maximize their franchise value as a going concern. Today’s announcement is the latest in Willis Re’s long history of providing key strategic tools that enable our clients to thrive.”
In focusing on franchise value, VBCM rejects the notion, implicit in many analytic tools, that a client’s business should be valued and therefore managed as if it were in runoff. Like traditional Enterprise Risk Management (ERM), VBCM begins with a comprehensive assessment of an insurer’s overall risk from multiple sources, including underwriting, adverse loss reserve development, stock market volatility, bond defaults, and reinsurer default risk. But VBCM goes well beyond typical ERM analysis. It not only addresses how much and what form of capital a firm should have given its overall risk profile, but also responds to these critical questions by identifying the amount and type of capital that maximizes the insurer’s value as a going concern.
“VBCM’s methodology and the answers it provides are both transparent and practical,” added Panning. “At Willis Re, we believe our clients deserve tools that can be indispensable not just to informing strategic decisions, but also to answering the key questions posed by shareholders, rating agencies, analysts, and regulators. In the current market environment, that kind of information is more important than ever.”
One of the world’s leading reinsurance brokers, Willis Re is known for its world-class, applied Analytics capabilities, which it combines with its Capital Markets and Reinsurance expertise in a seamless, integrated offering that helps clients increase the value of their businesses. Willis Re serves the risk management and risk transfer needs of a diverse, global client base that includes all of the world’s top insurance carriers. The broker’s global team of experts offers services and advice that help clients make better reinsurance decisions, access worldwide capital markets and negotiate optimum terms.