What are the potential risks - as well as the rewards - of a proposed reinsurance structure? How can an insurance company executive decide if a structure provides his or her company with the right balance of risk and return, minimizing risk and maximizing premium?

Collins' Dynamic Reinsurance Model (DRM) is a proprietary tool that provides insurers with the information needed to make that determination. The model enables us to help our clients quantify the differences among various reinsurance options, to fully understand the risk and return associated with all possible outcomes. With DRM, Collins can design the risk transfer program best suited to help a client achieve strategic business goals and objectives.

Here's how DRM works: Working with the client, we first help define the company's risk appetite and financial targets. That "client profile" is put into the model, along with company-specific historical data and loss distributions, and the output of commercially available catastrophe models or other industry tools.

At the same time, we design multiple reinsurance options using current industry risk appetite, pricing and constraints that correspond to the company's risk transfer objectives.

Once the model has been constructed, we run thousands of simulations, testing the different reinsurance structures from both severity (single event) and frequency (multiple event) standpoints. With each simulation all perspectives regarding premium, expense and losses are captured with which to evaluate each reinsurance option.

The DRM analyses provide a client's reinsurance decision makers with a quantitative analysis that helps them understand the financial differences among proposed reinsurance options.

Using this analysis, we provide a thorough discussion of a variety of factors that may influence the reinsurance buying decision, including:

• Reliability of results, given the data used for the analysis,
• Identification of the key drivers of risk in an insurance portfolio, and
• An interpretation of the modeled results by reinsurers.

The final step is to analyze optional reinsurance structures based on such factors as market pricing, the client's risk appetite and, perhaps most important, the client's projected market position and financial strength.

With this combined approach, we balance our experience, technology and market knowledge to provide a final result:

• A reinsurance program designed to provide the right balance of risk transfer, ceded premiums and portfolio returns;
• A technical analysis for decision making, coupled with detailed results for program marketing;
• Tested against thousands of simulations to provide a thorough understanding of short- and long-term risk and return;
• With an ongoing plan for profitable growth and portfolio distribution.