The hallmark of technology: RenaissanceRe stands out among reinsurers for its innovative use of technology in underwriting, particularly when it involves catastrophe modeling.

The foundation for RenaissanceRe Holdings' prowess in underwriting property catastrophe reinsurance relies on well-designed technology together with a culture that understands the strengths and weaknesses of that tool in making decisions, said William I. Riker, company president.

The reinsurer has made a conscious effort to seek out employees with technical expertise, he said. "It's not our number one criterion, but because we use such a rigorous technical and quantitative analysis around our decision processes, we find that those are the types of people who feel comfortable in our environment," he said, adding that most of the staff understand the concepts of statistics and other such quantitative measures. "Being a company that started from scratch back in the early '90s, we built up our staff from scratch and ended up with a highly, technically competent group."

That goes a long way to explain why RenaissanceRe stands out among reinsurers for its innovative use of technology in underwriting, particularly when it involves catastrophe modeling.

The company's approach is to take commercial catastrophe models, determine how to take the outputs of those models, then overlay them with a proprietary system called the REMS model that uses information supplied by the client and distills it. It then displays results to underwriters so that they can quickly review and assess the exposure of clients in a consistent way, time after time, Riker said. "They're not looking at 10 different reports that might be slightly different each time," he said. "They're looking at a single screen where they can see the results of a blended model which we like to think minimizes the biases of each individual model. What that comes down to is just understanding and designing a system which helps the underwriting process, or enhances the existing underwriting process, in order to make the best decisions possible."

Using the blended model, underwriters can quickly understand the character of the risk presented, then move on to the next deal, no matter how different it may be, and quickly boil that one down to the same assessment framework, Riker said.

"I'm a firm believer that in our business--especially with the way the process sets up of a lot of contracts renewing around Jan. 1--one secret is to provide your decision makers with consistent information for them to digest in the relatively short time frames they have to digest it," he said.

The REMS model also has a proprietary financial analysis component that handles the significant amount of computation that needs to be done in order to properly assess the financial characteristics of the transaction. The calculation in this phase is done real time often as part of the actual negotiation with a customer, "as opposed to being done in a back room in the actuarial department," Riker said.

In the reinsurance business, clients and brokers often ask for different options in order to try to find the product that works best for them. "And if you don't have real-time tools, then either your service is not very good or you're likely to make incorrect assessments at some times," he said.

From Exposure To Financial Calculation

Once an underwriter believes he or she has a good assessment of the underlying exposure, then the assessment of the individual contract that will be written or the individual transaction that RenaissanceRe is going to enter into becomes more of a financial calculation. The company reviews the risk return characteristics of that particular transaction relative to its portfolio and relative to the industry to arrive at what it thinks is an appropriate financial transaction for the reinsurer and the client, Riker said.

"Because that financial calculation also happens in real time, if we were to quote a policy and then have a broker come back a day or so later saying he needed to have a different structure quoted, our people can go into the system and requote another structure that we are economically indifferent to in a matter of a minute as opposed to having to go back to the drawing board, back to an actuarial department or whatever to come up with revised pricing on revised structures," he said.

Embedded in his company's system is a great deal of valuable information accumulated over the years, and it has "a pretty strong feedback loop," he said. That means that if information generated by the system does not make sense, the underwriter has the ability to question why and determine whether or not the answer is a valuable counter intuitive signal or a weakness in the modeling approach taken in that particular transaction.

RenaissanceRe also is using its technology to focus on driving down the risk reward criteria used at the original policy level. "We believe that rigorous financial analysis of the risk return, which we found to be very valuable in the reinsurance transaction, is also very valuable down in the insurance transaction," Riker said. "We've developed tools, and we have a variety of clients that utilize some of our tools, in order to better understand their underlying portfolios of risk."

The reinsurer's analysis often can provide a clear direction on ways a client can improve the quality of its portfolio. Riker finds it interesting, however, that so many clients resist shedding just 5% to 10% of their risk even though the analytics seem to indicate these risks are very poor. "It's a new science, and I'm surprised at how difficult it is to execute, how difficult it is to get people to buy into it," he said. "But then again, when you think of the many, many years of culture and processes that have been going on, it's not surprising that people just don't turn on a dime."

Five or six years ago, it was rare for other reinsurers to have a system such as REMS, Riker said. Now, after Sept. 11, he believes most reinsurers have invested in trying to build systems that function similarly because the strength of those systems has become increasingly evident. "But I would say most reinsurers still do not have that type of system, which continues to provide us with the competitive advantage," he said.

Even if they did, Riker believes that RenaissanceRe still would have the edge because it has personnel who understand how the system operates and how to use it accordingly, instead of relying solely on technology to arrive at an underwriting decision. In fact, the staff at RenaissanceRe has a passion to understand the business much better than has been the norm in the past, he said. "They have a passion to dig deeper, and we have found that as you dig down, there're plenty of nuggets of gold to be discovered," Riker said. "The idea is that if you work harder and look at things in a different way, it will bear fruit. And that provides people with the motivation to continue digging."

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RenaissanceRe Holdings Ltd.

A.M. Best Company # 86357

Headquarters: Bermuda

Lines of Business: Catastrophe reinsurance; catastrophe reinsurance written for the accounts of joint venture Top Layer Reinsurance Ltd. and DaVinci Reinsurance Ltd; specialty reinsurance, which includes all lines of reinsurance written by RenaissanceRe other than property-catastrophe reinsurance; and individual risk business, which includes primary insurance and quota share reinsurance.

2003 Net Income: $604.6 million

Distribution: Brokers

For ratings and other financial strength information about this company, visit www.ambest.com.