Such a new-business strain typically originates from high initial distribution costs and is often amplified by prudent reserving requirements. As a result, not only can an insurer incur an initial strain on its cash position, but, depending on the accounting regime it is subject to, also an initial operating loss. Especially the latter strain stands in stark contrast to the overall expected profitability of the new business and its positive contribution to the insurer’s embedded value. In addition, it often erodes the insurer’s capital base.
Hannover Re has developed a range of tailored financial solutions that enable our clients to write higher volumes of new business without the need for additional capital or cash resources. Often they also help the client to enhance its return on equity and stabilise annual earnings.