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.
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.
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.
Group-Level Implications of Solvency II: Group support will not be permitted when Solvency II becomes effective in 2012. As a result, the flexibility to use capital held anywhere in the group in calculating the Solvency Capital Requirement (SCR) will not be available. Rather, each entity will have to calculate its SCR based on the capital it has, regardless of its group’s position as a whole. This last-minute change to eliminate group support could prompt some European insurance groups to change their structures - or at least rethink how much risk they will take in each entity.
Capital Modeling in the Age of Systemic Risk, Part IV: 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.
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Reinsurer Financials Point to Savvy Capital Management: Reinsurers have enjoyed a significant recovery in 2009. Effective and disciplined capital management in previous years and good-natured weather enabled them to sit out the financial storm and build up strong cash positions. Meanwhile, the broader financial services industry is still coping with the effects of the worldwide financial crisis. Stability has returned to the reinsurance market, though it remains delicate. But, by all measures, the savvy management of capital and underwriting has been successful.