Aon Re Introduces Prime/Cap(SM) Capital Optimization Program

Aon Re Inc. announced the introduction of Prime/Cap(SM), which it described as “a comprehensive suite of capital optimization and allocation tools for property-casualty insurers and reinsurers. Prime/Cap(SM) is fully integrated within Aon Re’s dominant Prime/Cap(SM) risk analysis and reinsurance optimization dynamic financial analysis platform.”

The bulletin notes: “Underwriting capital now can be accessed from several different sources and each source has unique and potentially useful characteristics. The range of underwriting capital extends from common and preferred equity, hybrid capital, sidecar capital, contingent capital, traditional reinsurance, alternative reinsurance to capital markets alternatives such as catastrophe bonds and collateralized hedge fund transactions. Prime/Cap(SM) provides an evaluation framework that fits this range of potential sources of underwriting capital to the optimal points in the distribution of each insurer’s or reinsurer’s range of potential expected and contingent liabilities.

“Prime/Cap(SM) also provides insurers and reinsurers with a mature set of capital allocation functions that build upon the collective insights of leading industry professionals and academics and applies them against the authentic underwriting experience that is generated by the core Prime/Cap(SM) DFA platform.External constraints, such as the updated A.M. Best’s BCAR, S&P’s CAR and the NAIC’s risk based capital, have also been incorporated into Prime/Cap(SM).

“This combination of 18 fully integrated and automated economic and external constituent’s views on capital is unprecedented and allows management to quickly consider many different methods of allocating capital to specific lines of business and products.”

Stephen Mildenhall, Aon Re Services executive vice president explained: “As the ’97 to ’01 underwriting cycle, the events of September 11th, 2001 and the ’04 and ’05 hurricane seasons have demonstrated, capital can be repeatedly consumed by pricing errors and moderate to extreme catastrophes. It is clear that more realistic and durable methods of allocating capital need to be considered. Multiple method capital allocation processes will become standard in the insurance corporate finance world and Prime/Cap(SM) expedites the computation and evaluation process that will be required to maintain these disciplines.”

Aon Re CEO Michael Bungert commented: “The current focus of key rating agencies on enterprise risk management processes, as well as insurer’s and reinsurer’s management demands for a more durable capital selection and allocation framework, really explain the value of Prime/Cap(SM) to our clients and prospects. We are pleased to extend our thought leadership on these issues as these important aspects of our industry are reconsidered in the wake of recent events.”

Topics Reinsurance Aon