November 13th, 2018

A Math Formula May Offer a Solution to Insurers’ Critical Challenges

Posted at 1:00 AM ET

Guy Carpenter has developed a methodology that applies a mathematical formula to provide insurers and reinsurers with a unified, practical framework for risk pricing and capital allocation.

The methodology applies spectral risk measures (SRMs) to help answer questions of reinsurance value, reinsurance cost allocation, capital cost allocation, risk-adjusted line of business performance assessment, pricing, underwriting and portfolio growth optimization. The aim is to apply SRMs to help insurers assess risk and allocate capital in execution of enterprise risk management and planning in a theoretically sound and consistent way.

SRMs’ theoretical properties have been studied intensively in the academic literature, yet found little use for lack of practical guidance. Guy Carpenter has developed a new and unique financial perspective on SRMs and has extended existing theory in a new direction aimed specifically at the challenge of reinsurance value and reinsurance cost allocation.

Learn more about Guy Carpenter’s new Spectral Risk Measures (SRMs) >>

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