October 13th, 2016

Integrating & Synthesizing New Emerging Risks – Within the ERM Framework: Part II

Posted at 1:00 AM ET

The careful evaluation of each new risk added to a portfolio moves the firm toward a metrics-based approach to risk and capital management, facilitating governance and enhancing the deployment of capital. The only problem for casualty writers, however, has been the availability of data and models to determine the true effects of a new risk to the carrier’s entire portfolio. Even if a casualty carrier wanted to make the most of an ERM framework, it would be limited by data, models and technology. Fortunately, this situation is changing.

Innovation is catching up with the casualty catastrophe and emerging threat to (re)insurer capital. Access to rich datasets and the development of new technology is beginning to enable (re)insurers to see how emerging and liability risks can radiate from one insured through an entire portfolio of risks. Although their development stage varies by peril and modeling approach, in an increasing number of scenarios, the unknown, in effect, are beginning to become knowable through the various models in development - and then can be integrated into an economic capital model framework.

Proper enterprise risk management assessment requires relative quantification of the various risks to the firm in addition to the absolute quantification of each of them. These risks encompass underwriting risk, reserve/payout pattern risk, reinsurance risk, traditional catastrophe risk as well as the various emerging and casualty cat risks previously discussed. Guy Carpenter’s MetaRisk® and BenchmaRQ® are standardized economic capital models empowering key decision makers with a deeper and more sophisticated view of complex risk drivers throughout their business. They also generate complete scenarios and the financial statements for each scenario contemplated. Built on the same foundation for each insurance company, these models can facilitate comparisons of a company’s risk profile to that of its peers and peer composites.

Link to Part I>>

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