Archive for March, 2010



March 31st, 2010

Solvency II - Approval of Internal Models: Part II, The Process of Approval

Posted at 10:00 AM ET
Eddy Vanbeneden, Managing Director
Contact

This series continues its review of the implementation measures described by CEIOPS regarding procedures to be followed for the approval of an internal model.

3. Approval process of internal models

The official form submitted by (re)insurers for approval of their internal model has many requirements:

  • A rationale for the use of the internal model
  • Results of a self-assessment of internal model readiness, mainly regarding Level 1 articles defining the use of internal models for Solvency II. This self assessment should cover a technical review of the internal model (scope, design, build, integrity and applications) and more particularly should define the following elements:

Continue reading…

March 30th, 2010

Solvency II - Approval of Internal Models: Part I, Introduction & Prerequisites for Approval

Posted at 10:00 AM ET

Eddy Vanbeneden, Managing Director
Contact

The Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) published many consultation papers in 2009 focusing on Level 2 implementation measures for Solvency II. Consultation Paper (CP) 37 addressed the procedures for approval of internal models. It was followed by a final paper entitled “CEIOPS Advice for Level 2 Implementing Measures on Solvency II ‘The procedure to be followed for the approval of an internal model’”, published in October, 2009.

Continue reading…

March 29th, 2010

Sources of Micro Risk

Posted at 10:00 AM ET

Alex Bernhardt, Assistant Vice President
Contact

Microfinance focuses on the execution of small, basic transactions in markets that do not have direct access to traditional financial services. While major institutions prefer to work with large amounts of capital, microfinanciers have moved in the other direction, making loans, issuing insurance polices, and facilitating currency transfers in parts of the world where individual transactions are not measured in billions or even millions of dollars, but in hundreds or single-digit multiples of ten.

Continue reading…

March 26th, 2010

Week’s Top Stories: Mar 20 - 26, 2010

Posted at 11:00 AM ET

Corporate Decision Making Using Economic Capital Models: Part I: Introduction, Quantifying Corporate Risk:  In the 1980s many large general insurance companies investigated the use of dynamic financial analysis for corporate decision making. Only a small number of insurers and reinsurers, many of which were European, were able to develop dynamic financial models that were adequate for use in decision making. The primary obstacles to implementation were actuarial knowledge and computer technology. By the early 2000s, technology had improved, actuaries had developed techniques that allowed better quantification of insurance risks and dynamic financial analysis had evolved into enterprise risk management (ERM) supported by economic capital models. With these improvements, regulators began to develop solvency rules that create incentives for insurers to implement economic capital models. Although the current impetus for economic capital models is regulatory, the original purpose of enhanced strategic decision making is still valid and companies that use their economic capital models for ERM will be industry leaders.

Read the article >>

Florida Hurricane Catastrophe Fund Approves 2010 Premium Formula for Development and Final Adoption:   The Florida Hurricane Catastrophe Fund (”FHCF”) Advisory Council held a regularly scheduled meeting on March 18, 2010, during which it reviewed the 2010 FHCF Reimbursement Premium Formula. FHCF base rates are to increase 4.76 percent due to the rapid cash build up factor moving from 5 percent to 10 percent. Aside from the change to the rapid cash build up factor, overall FHCF rates remain flat. FHCF base rate will increase 4.81 percent pending adoption of the cat fund fix legislation (SB1460 HB949), which sets the FHCF retention on the previous year’s exposure.

Read the article >>

Corporate Decision Making Using Economic Capital Models: Part II: Identifying Capital Needs:  Capital needs can be defined from a number of different perspectives: Regulatory: which focuses on the probability of insolvency; Rating agency: which focuses on both the probability of insolvency and the ability to continue with the current rating; and Going concern: which focuses on the ability to continue to implement current plans. The perspective determines the types of metrics that will be used to establish the level of capital required.

Read the article >>

Aviation Market Struggling to Rebound: Part I, Disastrous 2009 and New Capacity: Despite the slight rate increases that aviation underwriters experienced in the final quarter of 2008, as 2009 began they could foresee another difficult year ahead. The events of September 11, 2001 left the insurance and reinsurance markets reeling. Immediate rate rises enabled the market to rebound. However, an improvement in aviation operational safety standards and a lack of major liability losses in the intervening years created an environment where premium levels fell, year on year. Aviation insurers had cause for concern.

Read the article >>

GC ForeCatTM Predicts Above-Average Hurricane Landfall Rates in Northeast, Southeast and Florida Regions for 2010 Season:   GC ForeCat is a product developed by Guy Carpenter in collaboration with WSI Corporation, the world’s leading provider of weather-driven business solutions, that provides pre-season hurricane landfall forecast rates for different regions in the United States. GC ForeCat revolutionizes hurricane forecasting by estimating the rate of landfall for regions along the US coastline. Four different regions (Gulf, Florida, Southeast and Northeast) are derived with associated likelihood of tropical cyclones making landfall in each area. Monthly updates are anticipated up to and including May.

Read the article >>

Most Popular Keyword:    haiti earthquake

And, you may have missed…

Get the Most Out of Cat Models, Part I: Manage the Unknown: Insurer and reinsurer reliance on catastrophe models has become part of the fabric of risk management. Though they provide guidance rather than clear courses of action, these tools help quantify risk and deploy their capital as effectively as possible. But, they aren’t perfect. Every catastrophe model has specific strengths and weaknesses, which is why risk-bearers tend to use several models to evaluate exposures, with the final decisions on whether to cover a particular risk shaped by loss history, company objectives and risk manager judgment. As a result, models are crucial to (re)insurer success … as long as they are used properly.

Read the article >>

Click here to register for e-mail updates from GC Capital Ideas >>

March 25th, 2010

The First Annual Report of the Guy Carpenter Asia-Pacific Climate Impact Centre

Posted at 10:00 AM ET

The Guy Carpenter Asia-Pacific Climate Impact Centre (GCACIC) was established in June 2008 through a donation from Guy Carpenter & Company, LLC and matching funding from the Universities Grants Committee of the Hong Kong Special Administrative Region Government and City University of Hong Kong.
Continue reading…

March 24th, 2010

Flooding: The Possible Changes Under Global Warming

Posted at 10:00 AM ET

Johnny Chan, Director, Guy Carpenter Asia-Pacific Climate Impact Center, City University of Hong Kong

Flood events often occur rather suddenly so there may not be enough time to implement disaster mitigation measures. A good understanding of the causes of individual floods is therefore crucial in increasing the lead time for issuing warnings. From the insurance perspective, such an understanding could provide a better estimate of the possible losses. With global warming being a reality, it would also be of importance to estimate how the frequency of occurrence of flood events may change.

Continue reading…

March 23rd, 2010

Severe Weather in Perth, Australia

Posted at 10:15 AM ET

perthsmallA severe storm battered Perth and its suburbs with powerful winds, large hailstones and heavy rain on  March 22, causing damage to buildings and vehicles and cutting power to tens of thousands of homes, according to reports. The storm cell hit the Perth metropolitan area late on March 22, bringing wind gusts of over 120 kmph (75 mph), golf-ball sized hail and up to 65 mm (2.5 inches) of rainfall. Officials said the storm’s trail of destruction extends from Joondalup down through the western suburbs and further south to Mandurah. Western Australia Premier Colin Barnett declared the city a natural disaster zone and estimated the damage bill will run into the hundreds of millions of dollars. The Insurance Council of Australia has also declared the event an insurance catastrophe. The Council says it is too early to place an estimate on the cost or the number of claims, but it should have a better idea within the next 48 hours.

Continue reading…

March 23rd, 2010

Corporate Decision Making Using Economic Capital Models: Part II: Identifying Capital Needs

Posted at 10:00 AM ET

Susan E. Witcraft, Managing Director
Contact

Capital needs can be defined from a number of different perspectives:

• Regulatory: which focuses on the probability of insolvency;
• Rating agency: which focuses on both the probability of insolvency and the ability to continue with the current rating; and
• Going concern: which focuses on the ability to continue to implement current plans.

Continue reading…

March 23rd, 2010

Florida Hurricane Catastrophe Fund Approves 2010 Premium Formula for Development and Final Adoption

Posted at 9:38 AM ET

The Florida Hurricane Catastrophe Fund (”FHCF”) Advisory Council (”Council”) held a regularly scheduled meeting on March 18, 2010, during which it reviewed the 2010 FHCF Reimbursement Premium Formula.

Continue reading…

March 22nd, 2010

Corporate Decision Making Using Economic Capital Models: Part I: Introduction, Quantifying Corporate Risk

Posted at 10:00 AM ET

Susan E. Witcraft, Managing Director
Contact

In the 1980s many large general insurance companies investigated the use of dynamic financial analysis for corporate decision making. Only a small number of insurers and reinsurers, (1) many of which were European, were able to develop dynamic financial models that were adequate for use in decision making. The primary obstacles
to implementation were actuarial knowledge and computer technology. By the early 2000s, technology had improved, actuaries had developed techniques that allowed better quantification of insurance risks and dynamic financial analysis had evolved
into enterprise risk management (ERM) supported by economic capital models. With these improvements, regulators began to develop solvency rules that create incentives for insurers to implement economic capital models. Although the current impetus for economic capital models is regulatory, the original purpose of enhanced strategic decision making is still valid and companies that use their economic capital models for ERM will be industry leaders.

Continue reading…