We present a review of the top stories covering models and modeling that have appeared on GC Capital Ideas in the last six months.
1. RMS Hurricane Model Update: RMS issued a significant update to its U.S. hurricane model, RiskLink, bringing material increases in risk estimates to many insurers with exposure to hurricane states. Early indications are that the average hurricane probable maximum losses (PML) for the industry will increase dramatically - by 20 to 25 percent. Regionally, the increases could be significantly higher.
2. Guy Carpenter’s Approach to Model Changes: From time to time, a catastrophe model vendor makes material updates to its model, generating a stir among companies who use its results in risk financing decisions. At Guy Carpenter & Company, we help companies understand the model limitations, and the impacts of model changes on their portfolios in the context of the industry as a whole. By researching the latest version of the model in relation to other models, we develop a broad understanding of expert views, and share these insights to help our clients use the outputs in the proper perspective and prepare for future model developments. A new briefing provides key insights.
3. Terrorism Solutions: Models: To support the process of managing and underwriting the terrorism peril, (re)insurers are increasingly using data management and modeling tools to analyze the risk. The dynamic nature of terrorism and the uncertainty in identifying the targets and frequency of attacks requires a different approach to manage the risk.
4. Guy Carpenter Publishes First Industry Risk Benchmarks Report: Guy Carpenter & Company announced publication of its first Industry Risk Benchmarks report, which provides risk benchmarks for loss ratios and reserves, by line of business, for coefficient of variation (standard deviation/mean), correlation and cycles.
5. Guy Carpenter Releases the First Hail Model For the Slovenian Insurance Market: Guy Carpenter & Company announced that it has developed the first hail model for Slovenia, following the 2010 creation of a flood model for the country. Since 2004, Slovenia has been affected by severe weather events that have included damage from hail. The weather events of 2008, which combined the destructive forces of wind, flooding and hail, resulted in total estimated insured losses of EUR200 million. Three of the five events that occurred in 2008 resulted in losses to catastrophe programs, of which hail was an important component. In addition, two significant hail events occurred in May and June of 2009 that caused insured losses.
6. A.M. Best Updates Its Comments on Catastrophe Models: During a recent webinar, a panel convened by A.M. Best reviewed catastrophe models and addressed questions that arose as a result of the new RMS and AIR model versions that have been released. The discussion was focused on how A.M. Best wants companies to demonstrate a solid understanding of their catastrophe risk exposure and where it fits within their risk tolerances. The panel outlined the need for rated companies to engage in ongoing discussions with their A.M Best analysts regarding the efficacy of model output, specifically, the companies’ confidence in the model output and the reasoning behind this view.
7. Guy Carpenter Expands Asia Flood Modeling Capabilities: Guy Carpenter & Company announced that it has extended the coverage of its Asia flood model to include the main flood risk areas in Jakarta, Indonesia. Floods occur in Jakarta each year, with widespread flooding in 1996, 2002 and 2007 that inundated up to 40 percent of the city. Increasing population pressure and subsidence (40 mm per year or more) of areas already under mean sea level continue to contribute to an increase of flood risk in the region.
8. Guy Carpenter Introduces MetaRisk® 6.0 For Enhanced Risk and Capital Management Decision Making: Guy Carpenter & Company announced the release of MetaRisk 6.0, the latest version of the firm’s risk and capital decision tool. MetaRisk gives users the ability to interact with the drivers of risk in order to understand systemic and unique risk sources, reflect correlations among assets and liabilities, allocate capital and the cost of reinsurance, monitor earnings volatility and quantify overall capital adequacy.
9. Oliver Wyman Report: Time for a Check-up: Capital Model Validation in P&C (Re)insurance: Capital models used in P&C insurance and reinsurance have become increasingly mission-critical to risk and business management. In recent years, regulators and rating agencies have heightened standards for these models dramatically, with an urgency magnified by turmoil in the financial markets. Today, however, insurers with effective models are able to capture competitive advantage with greater capital flexibility, lower cost of capital, and ultimately, stronger and more stable earnings.