April 2nd, 2012

Finding Success in a Transitioning Market - How Guy Carpenter Can Help: Part I

Posted at 1:00 AM ET

The difficult 2012 renewals were a culmination of a challenging 12 months for the (re)insurance sector. The heavy catastrophe losses of 2011 came at a time (re)insurers faced serious economic headwinds, with subdued and historically low interest rates. Concern also remains over the sovereign debt crisis in Europe and the prospect of higher inflation in certain key economies. 2012 is likely to be another challenging year for the sector, but growth opportunities exist for companies that have the industry’s best tools, advice and analysis at their disposal.

How Guy Carpenter Can Help

Guy Carpenter is uniquely positioned to help clients navigate a changing and increasingly segmented reinsurance market. Our GC Global Analytics and Advisory team offers services and solutions that include industry-leading risk analytics, strategic and technical advice and capital advisory. We employ over 300 modeling, actuarial and advisory professionals through our GC Analytics®, Global Advisory and GC Securities teams who closely collaborate with Guy Carpenter’s global broking force to deliver the best insights and growth opportunities to Guy Carpenter’s clients. We encourage you to contact your Guy Carpenter representative to review and discuss your modeling, advisory and capital needs in more detail. Among the specific services and tools we utilize and offer are:

ROLePlay and EuroBench

ROLePlay and EuroBench capture all property catastrophe placement and modeled loss statistics including each market’s quotes, firm order terms and authorized relative to signed lines. Combined with MetaRisk®, ROLePlay and EuroBench provide the underlying market perspective necessary to judge fair market price for your catastrophe reinsurance program.

Your Guy Carpenter team will evaluate current and proposed reinsurance program structures against the purchases and modeled loss results of comparable companies (specific identities are not revealed). Peer groups are developed based on similar characteristics such as TIV, subject premium, lines of business or area of operation. ROLePlay and EuroBench also play an important part during our pricing analysis of your proposed reinsurance program. These proprietary tools assist you in determining the best strategy to adopt based on your reinsurance budget and the best available terms from the marketplace.

Guy Carpenter Proprietary Modeling

Guy Carpenter’s Model Development Team, established in 2004, has developed a number of industry-leading proprietary catastrophe models for perils or regions where no other models exist, or where market-wide modeling technology is still not as advanced as Guy Carpenter’s proprietary alternatives.

In addition to the modeling of natural perils, GC Analytics has acquired expertise in modeling man-made catastrophes. This is accomplished through both the use of commercial modeling platforms and the development of proprietary tools. The wide range of services offered covers the assessment of man-made events for conflagration, terrorism, casualty events, pandemic events that may hit a life portfolio and marine cargo accumulations.

i-aXs®

Guy Carpenter’s i-aXs data management platform provides a full suite of tools to help insurers translate their data instantly, allowing for faster and better informed decisions. The award-winning platform integrates sophisticated data analysis systems, cutting-edge technology and satellite imagery to provide more efficient management of exposure and loss data. It also provides data mining, analytics and real-time catastrophe information.

i-aXs allows users to select dozens of standard reports or create a custom view of their data. Exposure reports illuminate how and where policies are being written while a loss output view outlines what the models indicate about client exposures. Past and present data can be compared with ease, facilitating a web-enabled data warehouse users can access 24 hours a day, seven days a week. Clients can also visualize their geographic data with our integrated mapping platform so data can be transformed into fully interactive maps.

i-aXs can also assist insurers with accumulation management issues. Its unique accumulator tool calculates concentrations of exposure for perils such as wind, hailstorm and earthquake. Unlike other accumulation tools, output is instantly generated in both map and grid formats. Thematically shaded maps and satellite imagery, along with user-friendly reports, provide detailed accumulation information within a user-defined geographic range.

From an underwriting perspective, i-aXs helps clients assess new locations and combine them with existing portfolios to obtain estimates of probable maximum loss (PML) and AAL. RealCat reports (Patent #7,949,548), meanwhile, assist users in monitoring and evaluating potential losses to a portfolio as an event is unfolding. RealCat covers several perils, including hurricanes, earthquakes, wildfires and floods. By combining satellite imagery with streaming hazard data showing precipitation bands, wind speeds and other related details, clients are able to track the potential impact of an event on their portfolios’ locations.

MetaRisk® - Capital Model Implementation (Partial or Full)

MetaRisk is Guy Carpenter’s proprietary stochastic reinsurance and capital modeling platform. It is a uniquely powerful, flexible and transparent solution that enables us to model clients’ entire portfolios rapidly, accurately and reliably. MetaRisk provides a realistic way of modeling reserve risk, which reflects (re)insurers’ own reserving practices. By building a parallel version of a client’s underwriting risk model (gross losses, ceded premium and ceded losses) in MetaRisk, we can undertake comprehensive validation and sensitivity testing. MetaRisk employs sophisticated algorithms that most closely replicate the treatment of secondary uncertainty by RMS so that the platform’s estimation of extreme losses, for example, 1-in-200-year events, is nearly exactly the same as that produced by the actual vendor model.

MetaRisk’s simulation speed empowers carriers to compare any desired metric for multiple alternative selections for loss frequency and severity. Consequently, they can sensitivity-test their original assumptions around loss ratio, premium growth, underwriting cycle and inflation.

MetaRisk is also able to simulate clients’ underwriting risk (losses and reinsurance) with a sufficient number of simulations within a relatively short timeframe. This allows an assessment of the impact of potential simulation error within the main capital model on key extreme scenarios, such as the 1-in-200-year underwriting result.

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