Guy Carpenter & Company, LLC (GC)

Grantee

Guy Carpenter & Company, LLC (GC) has been active for 85 years as a specialist in risk and reinsurance. With 50 offices worldwide, the company offers reinsurance solutions for clients across the globe for a variety of risks, including agriculture, life, accident and health, political and natural disasters, property and workers compensation.

Project Summary

• Project name: Guy Carpenter Micro-reinsurance Facility
• Project start date: January 2009
• Duration: 18 Months
• Country: Global with a preliminary emphasis on Latin America

Beneficiaries

Project beneficiaries will likely fall into one of the three following general categories:

• Existing Microinsurance Schemes: formal/informal; risk bearing/non-risk bearing; corporations/NGOs
• Potential Microinsurance Schemes, especially MFIs with no existing microinsurance products
• Other Risk Transfer Beneficiaries with no existing risk transfer mechanisms to protect against catastrophic losses, such as those experienced by an MFI's loan portfolio when a natural disaster occurs

Guy Carpenter expects its risk placement and advisory services to enable an estimated 8 million low income persons to obtain essential new and/or improved microfinance products (including insurance) within five years.

Project Description

Reinsurance, risk transfer, and enterprise risk management are vital to the short- and long-term viability of microinsurance and microfinance operations (collectively MFIs). Most MFIs lack sufficient access to meaningful risk transfer solutions. This lack of access hampers market expansion and product diversification. It also threatens the financial solvency of existing and potential new MFIs as well as that of millions of existing and potential low-income clients.

GC aims to create the infrastructure for an innovative multiline micro-reinsurance risk-pooling facility, enabling MFIs to obtain cost-effective and efficient risk transfer solutions that would otherwise be difficult for them to obtain independently. The facility will aim to structure efficient reinsurance products that are both affordable and effective for MFIs and profitable for reinsurers. Tailored solutions devised in tandem with GC will help MFIs address current needs and attain future goals, improve institutional stability, increase product capacity, enhance product penetration, and stimulate product innovation. Such solutions will also provide MFIs with access to commercial market expertise. Broadly, an active micro-reinsurance market will promote macro- and micro-level innovation, and increase awareness of microinsurance among (re)insurance practitioners worldwide. It also will improve overall microfinance service penetration and quality by increasing the available capacity for - and the stability of - existing and new products.

The framework for the facility will be developed over a 12-month time period and implemented primarily with a focus on the Americas (though it will be open to deployment in other regions on an ad hoc basis). The facility will aim to structure efficient reinsurance products that are both affordable and effective for MFIs and profitable for participant markets.

Key Challenges

Reinsurance / Supply-Side Challenges

• Data requirements: reinsurers may require more information than MFIs are willing or able to provide.
• Capital requirements: reinsurers may require MFIs to maintain more capital than currently is available in order to accept risk transfer.
• Pricing requirements: reinsurers may require higher prices for their services than MFIs are able to charge or pay.
• Partner security requirements: reinsurers may require MFI partners to verify and maintain creditworthiness.
• Awareness/Understanding of microfinancial concepts/products: reinsurers may not know the microfinance sector well enough.

Microfinance / Demand-Side Challenges

• Data quality/information systems: MFIs may not have compatible information systems or may lack the data necessary to conduct risk analysis and transfer.
• Demand for services/solutions: MFIs may not want to increase their knowledge of exposures, improve their risk management procedures or transfer their catastrophe risks.
• Credit quality: MFIs may not meet the various credit criteria which some reinsurers require of potential partners.
• Underlying product pricing: MFIs may not charge sufficient interest/premium on primary products to support sustainable operations or the purchase of reinsurance.
• Awareness/Understanding of risk transfer concepts: MFIs may not be aware of the uses and benefits of risk analysis and transfer.

Learning Agenda

• What type/class of risk transfer solutions are in active demand and can be applied to help MFIs more readily meet their organizational goals? How large and broad does the market for such products appear to be?
• Will access to effective and affordable risk transfer solutions enable MFIs to sell more and broader services, improve stability, and persevere through catastrophes? Does the availability/accessibility of commercial reinsurance market capital and underwriting capacity help develop the microinsurance market?
• Under which conditions can a reinsurance intermediary successfully adapt and apply its suite of services and risk transfer solutions to the micro-market? How can the involvement of an intermediary be an improvement for the MFIs activities?
• What effects will risk transfer solutions have on product capacity and innovation, outreach/penetration, diversification, breadth/scope of services, etc. for each group of targeted clients?

Quote

More information on the project

• Guy Carpenter & Company, LLC