SRS Altitude LinkedIn Series Episode 1: What is Alternative Risk Transfer

In insurance and reinsurance, Alternative Risk Transfer (ART) offers innovative solutions beyond traditional products, addressing needs that standard markets can't efficiently handle. ART solutions often feature unique elements like:

• Unconditional Multiyear Terms: Contracts remain in effect regardless of loss experience, as long as the underlying risk doesn't change materially.
• Combined Lines of Business: Integrating different lines under one contract with combined and aggregated coverage limits and deductibles
• Risk-Financing Components: Premiums can include a self-insurance element, exchanging fixed payments for variable indemnification based on actual losses.
• Pre-Agreed Payouts and Index-Based Triggers: Payments are determined in advance and/or triggered by third-party indexes.

ART solutions fall into three main categories:

1. Structured Reinsurance for Captives: Customized coverage for companies insuring their own risks.
2. Structured Insurance for Corporate Retention: Tailored solutions for businesses retaining certain risks.
3. Parametric Insurance: Payouts based on predefined event-triggers, like natural catastrophes.

A fourth category, Insurance-Linked Securities, allows capital market investors to access portfolios of insurance risk but is less relevant for corporate insurance due to the need for large numbers of homogeneous risks, typically found in insurers' portfolios, not individual corporations.

ART's flexibility and innovation make it an exciting option for addressing complex risk management needs.