Here we highlight recent stories that have appeared on GC Capital Ideas discussing trends around capital models.
Capital Model Embeddedness: Capital models are becoming more and more “embedded” into property and casualty (re)insurers’ business processes. These models are typically constructed with two distinct and often contrasting purposes: 1) measuring capital for rating agency and/or regulatory requirements and 2) risk management and strategic business planning.
Capital Models - What Lies Beneath: A robust capital model can be a great tool to help run a (re)insurance business. It is a given that capital models rely on a huge wealth of assumptions, and it is the quality of these assumptions that determine how useful the model is. There is an emphasis on those assumptions that are explicit, for example, catastrophe model outputs, premium rates and reserve volatility. But there is another type of assumption - that which is implicit. These assumptions can have a very material impact on the model results.
Making Models More Responsive: The Framework: Many insurance executives will have seen their companies incur high costs preparing for Solvency II, in particular for actuarial staff resources that build internal models. But are they seeing a good return on this investment?