Managing FX Risk Insurance Sector

Premiums are often denominated in foreign currencies – typically USD and EUR. This creates a “mismatch” in currency flows, forcing insurers to absorb unwanted FX risk when converting back to their reporting currency. 

To shield your premiums from this risk, insurers require a bespoke FX strategy that helps you better understand and manage their FX exposure. Once in place, this will safeguard them against exchange rate volatility now, and in the future. 

Claim payments in alternative currencies are often written in the underlying premium currency, which aren’t carried as active balances. Moreover, exchange rate fluctuations between a claim being agreed and the settlement payment being made can influence the value of these payments – a significant depreciation in the rate could increase settlement costs, while an appreciation could create savings.   

Overseas claim payments are usually stated in the original premium currency, which is not kept as an active balance. Additionally, changes in exchange rates between agreeing on a claim and making the settlement payment can affect the payment value – if the rate depreciates, settlement costs may rise, while appreciation could lead to savings.

Having gathered an in-depth understanding of your requirements, exposures, pain points, and risk appetite, Lumon stabilises your premiums by developing a tailored FX strategy that leverages solutions like forward contracts – an agreement to buy or sell currency at a specified price on a predefined date. 

For instance, if you receive monthly overseas premiums in dollars or euros, these premiums can be secured back to sterling by locking in an exchange rate. By mitigating currency risk using flexible solutions, we empower you to maintain competitive pricing and enhance overall financial stability.

Spot trading along with Limit Orders and Stop Losses can help you manage short-term volatility, while Flexible Forward Contracts, layered hedging and a blended trade management approach can protect against longer-term risks.

Lumon’s efficacious processes for global claim settlements ensure that international transactions are executed seamlessly, providing you with the agility to respond to client needs globally. 

Lumon’s online platform facilitates the efficient and cost-effective handling of regular claim payments – a streamlined approach that saves time and money compared to traditional methods.