Archive for November, 2009



November 30th, 2009

GC Podcast 13 - Capital Allocation (Susan Witcraft)

Posted at 9:00 AM ET

Susan WitcraftSusan Witcraft, Managing Director, in Guy Carpenter’s Instrat® Unit and leader of the Financial Intelligence Team, discusses capital allocation in this new GC Capital Ideas podcast. Click the audio player below to listen to the interview, or download the interview in a file that will work with your iPod.

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November 30th, 2009

A Survey of Capital Allocation Metrics: Introduction

Posted at 1:00 AM ET

Susan Witcraft, Managing Director, Financial Intelligence Team, Instrat
Contact

Capital allocation is a discipline without consensus. Some believe in sticking strictly to allocating the cost of capital, while others believe in allocating capital itself. Meanwhile, the methods for allocating capital (and its attendant costs) vary, ranging from the simplest — standard deviation — through the increasingly complex covariance, co-xTVaR and shared assets approaches. The exercise becomes one of managing tradeoffs, as risk managers balance the simplicity of effort against the potential benefits of capital optimization.

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November 29th, 2009

Top 10 Stories: November 2009

Posted at 1:00 AM ET

1. Impact of Earnings on Volatility Price/Book Ratios: The link between a company’s earnings and its share price is intuitive and well documented. Equally logical, although far less studied, is the correlation between the volatility of earnings and share price. The favorable impact of stable earnings on market valuation is intuitive considering market capitalization represents a view of future discounted cash flows and unexpected earnings volatility reduces the predictability of those cash flows.

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2. Finding (Re)Insurance Innovators: It seems that everybody claims to be on the leading edge when it comes to the best tools and latest ideas for the (re)insurance industry. Capital models, dynamic financial analysis and Enterprise Risk Management (ERM) practices abound. So, how can you sift through all these toolboxes to find the most valuable, genuine and applicable instruments of innovation?

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3. GC Podcast 12 — Cat Modeling (John Tedeschi): John Tedeschi, Managing Director and Chief  of Catastrophe Modeling in Guy Carpenter’s Instrat® Unit, discusses catastrophe modeling in this new GC Capital Ideas podcast. Click the audio player below to listen to the interview, or download the interview in a file that will work with your iPod.

Read the article >>

Continue reading…

November 28th, 2009

Capital Modeling in the Age of Systemic Risk, Story Index

Posted at 1:00 AM ET

Part I: Hidden risks lurk in nearly every insurance portfolio. Unexpected accumulations, correlated threats and unimagined financial market developments can take shape quickly and severely. When disaster strikes — either because of a storm or an economic shift - insured and asset losses can drain balance sheets, impair return on equity (ROE) performance and destroy shareholder value. The cost of systemic and hidden risks can impact every link in an insurer’s financial supply chain, with today’s losses causing capital costs to rise for months, even years.

Read the article >>

Part II: To derive the greatest benefit from an ERM investment, risk management by metrics becomes essential. Every risk assumption, retention or transfer decision must be analyzed using the holistic model to determine whether it is shareholder value-accretive. A rigorous, disciplined capital modeling effort will help a carrier move confidently by supporting strategic decisions with an objective, quantitative foundation.

Read the article >>

Part III: The net impact of prudent capital modeling and management — in regards to both rating agency evaluation and regulatory compliance — is a competitive advantage. (Re)insurers that accept the outcomes of rating agency or standard regulatory calculations may wind up either with gaps in cover (where de facto approaches are insufficient to address a carrier’s risks) or unproductive capital (where the norm requires over-allocation). The use of an internal capital model, on the other hand, allows a carrier to optimize its analysis to its own situation, with more accurate results and more informed decision-making.

Read the article >>

Part IVEven in the early stages of ERM and economic capital modeling, progress continues. Investments are being made in better risk identification methods and more resilient ERM structures. Capital modeling technology is advancing as well, including better coverage of asset-side risks. With property-catastrophe modeling fairly well established, attention is now turning to casualty catastrophes — a far tougher modeling challenge, as the dimensions of correlation are broader and more complex. Economic bubbles expand and burst with greater frequency and severity.

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This article is intended for general information only. The information is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such. Statements concerning accounting, legal, regulatory or tax matters should be understood to be general observations based solely on the author’s experience in the reinsurance industry, and may not be relied upon as accounting, legal, regulatory or tax advice which he is not authorized to provide. All such matters should be reviewed with your own qualified advisors in these areas.

November 27th, 2009

Week’s Top Stories Nov 21 - 27, 2009

Posted at 1:00 AM ET

Capital Modeling in the Age of Systemic Risk, Part II: To derive the greatest benefit from an ERM investment, risk management by metrics becomes essential. Every risk assumption, retention or transfer decision must be analyzed using the holistic model to determine whether it is shareholder value-accretive. A rigorous, disciplined capital modeling effort will help a carrier move confidently by supporting strategic decisions with an objective, quantitative foundation.

Read the article >>

Protect Your Balance Sheet from Casualty Catastrophe Risk: Indications of an economic recovery and fairly flat renewal are already beginning to obscure the experience of the past year. For professional liability insurers, this is particularly disconcerting, for even as balance sheets grow stronger, the implications of the largest casualty catastrophe in more than 70 years are still unfolding. The lawsuits and claims may take years to resolve, suggesting that the effects of September 2008 will be with us for quite a while. As the situation develops, professional liability insurers should use what they learn to revisit accumulations in their portfolios and take action to protect their capital — and shareholder value — from future worldwide chain reactions of liability exposure.

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GC Podcast 12 — Cat Modeling (John Tedeschi): John Tedeschi, Managing Director and Chief  of Catastrophe Modeling in Guy Carpenter’s Instrat® Unit, discusses catastrophe modeling in this new GC Capital Ideas podcast. Click the audio player below to listen to the interview, or download the interview in a file that will work with your iPod.

Read the article >>

Continue reading…

November 26th, 2009

Capital Modeling in the Age of Systemic Risk, Part IV

Posted at 1:00 AM ET

mango_smallDonald Mango, Chief Actuary
Contact

Even in the early stages of ERM and economic capital modeling, progress continues. Investments are being made in better risk identification methods and more resilient ERM structures. Capital modeling technology is advancing as well, including better coverage of asset-side risks. With property-catastrophe modeling fairly well established, attention is now turning to casualty catastrophes — a far tougher modeling challenge, as the dimensions of correlation are broader and more complex. Economic bubbles expand and burst with greater frequency and severity. Government intervention policies and practices could be reducing the relevance of the past for forecasting the future. Global interdependency, trading relationships and economic shifts are colliding with property catastrophes, which may be showing the effects of climate change.

Continue reading…

November 25th, 2009

Capital Modeling in the Age of Systemic Risk, Part III

Posted at 1:00 AM ET

mango_smallDonald Mango, Chief Actuary
Contact

The net impact of prudent capital modeling and management — in regards to both rating agency evaluation and regulatory compliance — is a competitive advantage. (Re)insurers that accept the outcomes of rating agency or standard regulatory calculations may wind up either with gaps in cover (where de facto approaches are insufficient to address a carrier’s risks) or unproductive capital (where the norm requires over-allocation). The use of an internal capital model, on the other hand, allows a carrier to optimize its analysis to its own situation, with more accurate results and more informed decision-making.

Continue reading…

November 24th, 2009

Capital Modeling in the Age of Systemic Risk, Part II

Posted at 1:00 AM ET

mango_smallDonald Mango, Chief Actuary
Contact

To derive the greatest benefit from an ERM investment, risk management by metrics becomes essential. Every risk assumption, retention or transfer decision must be analyzed using the holistic model to determine whether it is shareholder value-accretive. A rigorous, disciplined capital modeling effort will help a carrier move confidently by supporting strategic decisions with an objective, quantitative foundation.

Continue reading…

November 23rd, 2009

Capital Modeling in the Age of Systemic Risk, Part I

Posted at 1:00 AM ET

mango_smallDonald Mango, Chief Actuary
Contact

Hidden risks lurk in nearly every insurance portfolio. Unexpected accumulations, correlated threats and unimagined financial market developments can take shape quickly and severely. When disaster strikes — either because of a storm or an economic shift - insured and asset losses can drain balance sheets, impair return on equity (ROE) performance and destroy shareholder value. The cost of systemic and hidden risks can impact every link in an insurer’s financial supply chain, with today’s losses causing capital costs to rise for months, even years.

Continue reading…

November 20th, 2009

Floods in United Kingdom

Posted at 11:14 AM ET

uk-floods-small-112009Heavy rain has triggered floods across northern England, southern Scotland and Wales this week, inundating hundreds of homes and businesses and causing widespread damage and disruption. The Environment Agency (EA) currently has 4 severe flood warnings and a further 28 flood warnings in place in northeast and northwest England, Wales and the Midlands following the heavy rainfall. The EA severe flood warnings are located in northwest regions of England (for the River Greta, River Eamont and River Cocker). Reports said Cumbria County in northwest England bore the brunt of the floods as rivers swelled.

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