Modelling team of the year: NewRe
Last year marked two major accomplishments for NewRe, a Zurich-based subsidiary of Munich Re Group.
First, NewRe's Zurich-based risk team successfully re-submitted its internal model to the local regulator following a major overhaul of the regulation on internal models.
This initiative was completed in six months when it might typically take two to three years.
Christian Dahmen, NewRe's chief risk officer says: "In a sense we stood on the shoulder of a giant, our parent Munich Re, which operates at a group model. We were able to use some of Munich Re's methods as a blueprint, but in other ways we had to develop our own toolkit since our risk profile is different than at the group level."
What made it such a big task was the expansion of types of business at NewRe, which has moved beyond its traditional property and casualty reinsurance. Among the newer lines of business are weather derivatives and parametric trigger covers, as well as variable annuity reinsurance and capital management solutions for life business.
As a result, significant model changes were required and new risks needed to be integrated into the reinsurer's enterprise risk management framework.
Regarding risk models, Dahmen, says: "You are never done because your risk evolves further, but this was a project is in its own right."
NewRe's second achievement, in light of the new and expanding business, was the redesign of an own risk and solvency assessment (ORSA) process that enabled the reinsurer's board of management to link key risks and define a clear risk appetite.
Such risks included strains on operative processes required for on-boarding business, such as liquidity procurement.
One impact of the ORSA process is that it has contributed to New Re's future growth prospects.
The firm created a "life risk taxonomy" that categorised the wide variety of life reinsurance contracts the firm is active in, and mapped to them the key risks, the treatment in the risk model and the risk charges.
The map was used in sessions with NewRe's board of management to help them better understand the strengths and weaknesses of the capital model.
As NewRe's CEO, Renate Strasser put it: "In the life risk taxonomy and the model, we now have an excellent starting point for making informed transactional decisions."