RCP Strategic Advisors Case Studies
Fortune 100 Client
Situation: P&C carriers were unwilling to offer a unique form of insurance that would mitigate a complex “business risks”, preventing a Fortune 100 client from securing a lucrative contract with a foreign government. Although two major insurance brokerages had been retained to assist with placing the risk, after 15 months they were unsuccessful.
Issue: Traditional brokers viewed the risk as a single event and were therefore pitching the risk as a “bet”; a “bet” P&C carrier were unwilling to take. After analysis and application of RCP’s proprietary deconstruction technique, RCP concluded that the risk was actual comprised of 28 separate risks. Of these 28 risks, P&C carriers had actually provided coverage for 22 similar risks for clients in other industries.
Result: RCP Strategic Advisors determined that P&C carriers were not interested in “one-off” risks that cannot be effectively diversified. The RCP team deconstructed the entire project and effectively demonstrated to P&C carriers that the program was a diversified insurance portfolio of non-correlated risks. The program was successfully placed in 6 weeks.
Global Financial Institution
Situation: A global financial institution had a large deferred tax debit on its balance sheet caused by expenses which they had taken for GAAP purposes, but were not allowed to deduct on their tax return until a future year. On a billion dollars of such timing differences, they had an asset of $350 million.
Issue: When the 2004 Democratic presidential candidate proposed a corporate tax reduction, the bank realized that if elected, the proposed legislation could cause a sudden decrease to income. A decrease in the corporate rate from 35% to 30% would mean an income decrease of $50 million to the corporation - on the enactment date of the proposed tax legislation. The company assumed that the risk of a change in tax legislation was probably uninsurable.
Result: RCP Strategic Advisors was retained to determine if an insurance solution could be structured. The RCP team deconstructed the risks and related accounting issues, discovering a viable insurance vehicle through which the risks could cost-effectively be transferred. An innovative insurance policy was drafted within the electoral time-span and successfully placed with insurers who agreed to bear the legislative risk in exchange for a premium.
World’s Largest Re-Insurer
Situation: A major re-insure recently acquired several complimentary businesses in an attempt to take advantage of the convergence between the insurance and banking industries. However as natural as these acquisitions appeared to be on the surface – the CEO found a serious lack of synergy as respective silos had yet to effectively cross-sell after 14 months.
Issue: A two part corporate wide strategy was deployed: 1) develop “super-salesman” who could cross-sell across all product lines; 2) shift sales efforts from Risk Managers to the CFO of prospective clients. It was believed that this strategy would help the re-insure to effectively compete against traditional investment banks while taking advantage of the supply-side convergence that was taking place in the market. The strategy was unsuccessful.
Result: RCP Strategic Advisors determined that convergence on the “supply-side” was less important than the convergence that was taking place on the “demand-side”. RCP developed a new strategy and a comprehensive list of recommendations that were ultimately presented to the Board. RCP Strategic Advisors helped reshape the corporate strategy – ultimately generating more cross-sell opportunities for the re-insurer.
Top Property & Casualty Carrier
Situation: A successful P&C carrier developed a new product that was considered to be unique and financially beneficial for corporate clientele. Yet sales of the product were lackluster.
Issue: The carrier believed that the products poor performance was due to: a lack of awareness of the products existence; poor communication of the products financial benefits.
Result: RCP Strategic Advisors determined that the product itself was ineffective and did not create for clients the suggested financial benefits. It was determined that the product did not address the intended risks corporations faced on a daily basis – had it addressed these pressing concerns it might have been a success. RCP advised a complete rework of the product and presented customer specific requirements that would lead to a much improved product offering.
RCP Strategic Advisors have in their previous careers advised international corporations and countries on advanced risk management techniques, supplementing insurance with the latest in currency, equity, interest rate and commodity derivatives (used alone or in combination). This included structuring for Italy an optimal balance between current cash outflow and the risk of higher future out flows, all in the context of reducing the debt/GDP ratio to enable entry into the Euro; financial structures to meet stringent requirement of Chinese investment needs; complex structures combining oil, interest rate and forex derivatives to manage the risks of an international oil company; combining an earthquake trigger, purely an insurance event, with a financial swap; or the cheapening of an expensive insurance by use of equity triggered retention cap. All of our work in this area focused on either enabling a risk transfer not otherwise possible, or making the risk transfer significantly cheaper than other techniques.