Etienne de Varax and Eric Joly-Pottuz, who both head HDI Enablers from HDI Global, explain how best to combine the financing capabilities of corporations and the know-how and strong balance sheet of an internationally leading P&C insurer to address risk management challenges
Back in 1903, the purpose of the creation of HDI as a mutual insurance company by the German industry was to offer its members solutions the market was not delivering at that time, therefore making them better protected and more competitive.
Fast forward 120 years later and this solution-oriented approach remains the DNA of HDI Global SE, now a carrier with almost €9 billion of gross written premium in 2022 – like its sister company Hannover Re, the world’s third-largest reinsurer.
Both carriers are integral parts of the TALANX Group, which wrote €53.4 billion of gross written premium in 2022.
This history, DNA and approach supported the captive services department of HDI Global over the years to develop an in-depth cooperation with the captive companies of many corporations.
Especially so in the field of international P&C insurance programmes involving the deployment of a large number of local policies by using the fully integrated HDI Global Network encompassing more than 175 countries.
Currently, HDI Global SE is acting as lead insurer for about 5,000 international insurance programmes across the world, many of them with integrated captive solutions.
The latest addition in this domain is Enablers, a risk finance solution unit dedicated to the design and implementation of bespoke solutions for corporations.
Any affinity programme is a B2C business. At its source is a sponsor that is selling its customer base insurance products, such as wallet insurance or extended warranty covers, through bricks-and-mortar outlets or virtual distribution channels.
Captive services and enablers working jointly design and deploy tailor-made affinity solutions with all types of sponsors, with a close attention throughout the whole programme cycle when dealing with customer legal protection matters and with claims handling processes.
Group open insurance policies are issued by HDI Global companies and reinsurance cessions are made to sponsors’ captives on the basis of quota share deals.
Such deals are designed with a holistic view on how best to take advantage of affinity programmes to better leverage the balance sheets of captive companies in the context of the risk management approach of their owners.
Virtual captive solutions
Virtual captives are multi-year structured insurance solutions. They give companies a tool to find ad hoc solutions for ‘difficult to place’ risks or legally insurable risks with no traditional market available.
Such solutions give our clients access to the balance sheet of HDI Global. HDI Global Enablers designs and deploys virtual captive solutions by issuing multiyear insurance policies.
Once an insurance need has been defined within a company, as well as a self-financing capability over a three-to-five-year period, a multi-discipline team will be assembled by Enablers comprising of underwriters, actuaries, legal, tax experts, and so on.
Policies backed by a virtual captive combine an insurance buyer’s self-retention and traditional risk transfer.
Such policies are designed and issued in full compliance with all the legal and tax regulations as applicable in any given possible issuance country.
At the end of the multi-year insurance period, if the balance between premiums on the one hand, and claims plus the remuneration of HDI Global on the other hand, is positive for HDI Global, then the resulting profit is shared between the insurance buyer and HDI Global in accordance with the profit-sharing agreement signed at inception.
Captive reinsurance solutions
Captives are exceptional tools to implement a long-term risk management strategy fitting with their risk appetites for companies.
At their beginning, they usually retain all the risks they underwrite; over the years, however, they very often come to a high degree of diversification and their sheer size make them candidates to purchase reinsurance to protect their balance sheet.
The TALANX Group is unique in combining a very strong reinsurance arm, Hannover Re, and a very strong insurance pole, including HDI Global.
Close cooperation between those two universes means that Enablers can design and underwrite various solutions to protect the balance sheets of captive companies:
- Mono-line protections: HDI Global is a very large P&C insurer and thus Enablers can propose mono-line covers addressing the needs of captives for certain exposures they want to limit, be it on a mono-year basis or on a multiline basis. The most basic approach consists of sharing on a quota-risk basis between HDI Global and a captive. HDI Global underwrites a risk and a layer ceded to a captive company retains a percentage on a quota share basis. One advantage of such a structure is to have a perfect alignment on the risk between the insurer and the insurance buyer through its captive company.
- Multi-line/multi-year protections: Diversified captives need balance sheet protections to handle loss accumulation across several lines of business. Working with Hannover Re Advanced Solutions, Enablers proposes multi-line and multi-year reinsurance solutions. They are usually deployed over three years to take advantage of the diversification of the captive over several years. If the loss experience is positive at the end of the three-year period for the reinsurer behind the captive company, a pre-agreed profit-sharing mechanism comes into play. Before the end of the three-year term, it is possible to trigger an annual cancellation clause if the balance is positive for HDI Global.
Parametric insurance solutions
Corporate clients are confronted with risks with either no market or deep enough market to address their balance sheet protection needs. Some of these – be it tangible or non-tangible risks – can be modelled and thus give base for a mutually trusted index between a corporation and Enablers. If such an index can be developed, an amount of desired coverage purchase has to be defined with the prospective buyer.
It is noteworthy to emphasise that opening a pricing phase is not based on a traditional underwriting methodology but on an actuarial probabilistic approach of the triggering of the chosen index. Access to data to build a pertinent index is key.
Either information on the peril to be addressed is publicly available or Enablers partners with respective information providers for such data (including companies using sensors for certain types of events) to develop with its in-house actuarial teams the proper index models.
The parametric solutions designed by Enablers for HDI Global are insurance solutions as opposed to derivatives.
Therefore, any solution to be built is taking into account all legal environment characteristics of the domicile of issuance of a parametric insurance or reinsurance solution, for instance, behind a captive company to comply with all applicable rules pertaining to such deals.
In some countries, any claim amount paid under a parametric type of insurance policy has legally to remain close to what would have been paid to settle a similar loss under a traditional insurance policy.
This prerequisite must be met to ensure a smooth and swift payment of any claim – which is the raison d’être of a parametric insurance solution.
HDI Global was founded by corporations 120 years ago and thus it is in the DNA of this company to address the needs of corporate customers. The parent company of HDI Global – TALANX – is among the six largest European insurance and reinsurance groups, with €53.4 billion of gross written premium in 2022. The combination of the forces of HDI Global and its sister company Hannover Re, the world’s third largest reinsurer, defines a unique proposition to clients to be better protected, in accordance with their needs and risk appetite, and therefore to be better entrepreneurs for the benefit of all their stakeholders.