Reserving and Capital Setting: Background and Challenges: Loss reserves are arguably one of the most difficult risks to estimate and monitor. In fact, inadequate pricing and deficient loss reserves have been the leading cause of property/casualty company impairments. According to A.M. Best, from 1969 to 2009 they triggered approximately 40 percent of all impairments - four times more than those emanating from natural catastrophes. There are many uncertainties in managing long-tailed, heavily legislated lines of business that can be triggered from emerging risks. Unforeseen inflation and anticipated legislative changes over a 10 to 30 year period present many demands. In order to prepare for emerging risk scenarios, future trends and related uncertainties need to be explicitly identified, contemplated and estimated.
Chart: Regional Property Catastrophe ROL Index, 1990 to 2016: The chart shows the indexes for United States, United Kingdom, Asia Pacific and Europe.
Guy Carpenter Forms Strategic Alliance to Develop Cyber Aggregation Model: Guy Carpenter & Company announced the formation of a strategic alliance with Symantec Corporation, a global leader in cyber security, to create a cyber aggregation model. The model will include a comprehensive catalogue of cyber scenarios from which insurers can derive frequency and severity distributions to measure the potential financial impact of loss from both affirmative cyber coverages and “silent” all-risk policies where cyber is the peril, but no cyber exclusions exist.
Risk Profile, Appetite, and Tolerance: Fundamental Concepts in Risk Management and Reinsurance Effectiveness: Prior to the recent turbulence in the financial markets, insurers and reinsurers were increasing their use of enterprise risk management (ERM) to make risk and capital management decisions. While this was driven in part by rating agencies and regulators, many carriers began to recognize the value of metric-based frameworks and capital models in evaluating their portfolios.
China Risk Oriented Solvency System (C-ROSS): The China Insurance Regulatory Commission (CIRC) is instituting sweeping changes through its three-tiered China Risk Oriented Solvency System (C-ROSS) framework that will dramatically impact how (re)insurers conduct business. It will strengthen capital requirements, risk management and transparency disclosures - bringing China in line with, and in some cases overtaking, global standards. The C-ROSS framework is similar to Solvency II: three tiers focusing on quantitative, qualitative and disclosure requirements.
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Risk Awareness: Identifying, prioritizing, selecting, executing and monitoring results of risk management projects are essential. As noted by the US Government Accountability Office in their post Hurricane Sandy review, an investment strategy would help the Federal Government enhance resilience for future disasters. Unless a clear risk-return framework is established, the opportunity to reduce publically held exposure will be challenging and the inertia around the status quo could endure until loss events occur that force reactionary funding from the public sector.