Cornish Mutual – the buyer’s perspective

Cornish Mutual is a general insurer set up by farmers for farmers in 1903, with the purpose of working to protect the farming community, and this purpose is still the same today.

Cornish Mutual had tried different approaches to their reinsurance protection. They were not leveraging the diversification benefits of their book of business, having to purchase two different “pillars” of cover at considerable cost even though they had rarely suffered a loss large enough to trigger either pillar, let alone both. Also, they were not protected against adverse accumulations.

As they worked through Solvency II it gave them much better data at product level and actuarial analysis of their capital requirements, working closely with Willis Re to better understand and articulate the unique nature of their book and reinsurance requirements. They decided to look for reinsurers who would be willing to take time to understand their portfolio and offer a more bespoke solution, considering the diversification benefits and the desire to build a long-term relationship, profitable for both parties. They met Farm Mutual Re at the ICMIF MORO conferences in London and Montreal in 2016 and 2018 respectively. Farm Mutual Re then visited them in Cornwall (UK) and met with one of their farming members.

A new reinsurance structure was introduced in October 2019, and Cornish Mutual has seen considerable financial benefits when compared with the old structure. Willis Re’s detailed understanding of their business model allowed them to offer invaluable guidance on the proposed structure and to introduce additional reinsurers to diversify the placement while optimising coverage and pricing. They also benefitted from Farm Mutual Re’s agricultural experience, particularly in relation to loss prevention. Cornish Mutual’s advice to small reinsurance buyers is to not take off the peg solutions, but instead to look for reinsurance partners who will take time to engage and create a bespoke solution, and to develop long term partnerships built on trust through mutuality.

Farm Mutual Re – a reinsurer’s perspective

Farm Mutual Re is a leading Canadian mutual reinsurance company based in Cambridge, Ontario. They currently provide their 47 mutual members with unique benefits such as free and unlimited reinstatements, unlimited catastrophe and stop loss protections as well as a guaranteed renewal.

In 1994, Farm Mutual Re began writing assumed reinsurance outside of their member companies to diversify their large Ontario risk exposure and to offer support to their mutual partners around the world. Today, they support mutual based organisations in North America, Europe and some parts of Asia and continue to look for opportunities to support mutuality with their stable reinsurance capacity as well as open sharing of knowledge and resources.

At the meeting with Cornish Mutual in 2018 it was clear that the two organisations had a lot in common and could find a way to work together for mutual benefit. Farm Mutual Re started to look for potential alternatives where they could play a pivotal role in Cornish Mutual’s reinsurance protection. They collaborated on a plan to develop a stop loss protection providing Cornish Mutual with ample surplus protection while lessening the need of costly, under-utilized reinsurance protections. It was clear that they would not be able to solve every issue or support at 100%, so Cornish Mutual involved their broker partner, Willis Re UK, who were instrumental in building a sustainable reinsurance programme which Farm Mutual Re were thrilled to support alongside a diverse panel of reinsurers.

Willis Re – a reinsurance broker’s perspective

Willis Re is the longest Supporting Member of ICMIF and understand the unique character of the mutual and cooperative sector and the importance of relationships. They also recognise that the mutual sector faces certain challenges and constraints and are experts in optimising the use of members’ capital through reinsurance.

Having worked with Cornish Mutual since 1999, Willis Re understood both their mutual approach and unique portfolio which is crucial in terms of the analytics, reinsurance structuring and engagement with potential partners. Their actuarial team built a bespoke strategic capital model, aligned with Cornish Mutual’s own internal model, from which alternative structures could be assessed against KPIs. They adjusted their models to reflect Cornish Mutual’s unique portfolio, then worked with Farm Mutual Re to find the optimal reinsurance structure and pricing to meet Cornish Mutual’s needs.

A multi-year whole account stop loss, supported by inuring motor/liability and risk/catastrophe excess of loss covers to address the potential volatility of large losses, was identified as the optimal solution. This structure improved all of Cornish Mutual’s key financial metrics whilst maintaining their Solvency Capital Requirement (SCR) within the required tolerance level. The key to the success of the arrangement was harnessing the diversification benefit within the portfolio via the core pillar and cross-participations on the inuring excess of loss covers. Farm Mutual Re participated across all three components of the placement.