October 21st, 2016

Week’s Top Stories: October 15 - 21, 2016

Posted at 6:30 AM ET

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.

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Hurricane Matthew: Hurricane Matthew became a rare Category 5 hurricane on the Saffir-Simpson scale, with maximum sustained winds of 160 mph. The hurricane followed the western edge of a subtropical ridge to inflict catastrophic damage to Haiti as a Category 4 hurricane before crossing eastern Cuba, and turning to the northwest through the Bahamas towards Florida.

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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.

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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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Chart: Regional Property Catastrophe ROL Index, 1990 to 2016: The chart shows the indexes for United States, United Kingdom, Asia Pacific and Europe.

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And, You May Have Missed…

Managing Volatility Key To Solvency II Transition: The impact of the Solvency II capital ratio on composite life and property/casualty balance sheets is proving more substantial than some companies initially expected, according to Eric Paire, Head of Global Partners & Strategic Advisory, EMEA at Guy Carpenter. This development is due to the double impact of market volatility and volatility within the solvency ratio itself.

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