2010 Year-to-date Review of Microfinance, Microinsurance: Here we bring together all of the stories that appeared on GCCapitalIdeas covering microfinance/micro risk/micro insurance in 2010. The series has presented the background and genesis of the product area and Guy Carpenter’s commitment to advance it.
Stories from Guy Carpenter’s Chief Actuary: Here we begin a review of the contributions to GCCapitalIdeas from Guy Carpenter’s Chief Actuary, Donald Mango, in the last year.
Long Tail Liabilities and Reserve Volatility: Dynamic Reserve Model (DRMTM): The convergence of a variety of pressure points at this time is leading to a set of unique circumstances that present opportunities around business strategy and capital allocations for the insurance industry. Future inflation is one of the pressure points. Inflation and uncertainty about its extent and timing is a function of untested but powerful monetary and fiscal policy actions. In addition to inflation’s potential effect on insurer liability management there is also an impact on the volatility of assets backing the liabilities. A reignition of the kind of severe inflation last seen in the 1970s is most likely not factored into any current insurer management practices for establishing reserves or setting capital levels.
Tropical Storm Colin: Tropical Storm Colin, the third named storm of the 2010 Atlantic hurricane season, developed at 09:00 UTC today and is currently located approximately 945 miles (1,525 kilometers) east of the Lesser Antilles, according to the National Hurricane Center (NHC). Colin packs sustained winds of around 40 mph (65 kmph). The storm is traveling in a west-northwest direction and this general motion is expected to continue for the next 24 to 48 hours as the storm slightly strengthens. The NHC said tropical storm-force winds extend 35 miles (55 kilometers) from the center of the storm.
TRIA, U.S. Terrorism and International Terrorism: Effect on the Insurance and Reinsurance Markets: We excerpt here from the recently published Marsh report: Terrorism Risk Insurance 2010, the section authored by Guy Carpenter’s Emil Metropoulos. Commercial insurers are strongly supportive of the Terrorism Risk Insurance Act of 2002 (TRIA), as it provides them an ultimate safety net for their terrorism exposures. However, the residual risk for terror events retained by insurers below the triggers and retention levels set by the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA), coupled with the relatively high cost of reinsurance in key exposure zones, means that insurers remain cautious about terrorism exposure. As a result, they continue to avoid accumulating high-profile urban exposures.
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Defining the Value of Risk Management: How do you put a price on risk management? In the early days of finance theory (1950’s), the value of risk management was questioned-unless, of course, it was costless. The nuances of a more complex business environment have rendered this position untenable, but we still struggle to quantify the benefits of risk management, especially in the (re)insurance industry. Thus, the fundamental activity of risk-bearers has not been measurable, leaving a cloud of ambiguity in the middle of every carrier’s operation.