Don Mango, Chief Actuary and John Tedeschi, Chief of Catastrophe Modeling
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To cut through the claims of innovation in the market, you need to know what you’re looking for. There are plenty of capital models, catastrophe models and Enterprise Risk Management (ERM) practices in the (re)insurance industry, but which are the most valuable innovations? The right choices can protect your capital, help you deploy it optimally and ultimately bolster shareholder value … but faux innovation can slow your growth — or leave you exposed to unexpected risk or still leave you exposed when you thought the gap had been filled.

As you evaluate the solutions available in the (re)insurance industry, here are five ways to make sure you’re choices are on the leading edge:

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Financial Intelligence Team
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Solvency II compliance should provide more opportunity than burden … if executed properly. The ability to use approved internal models results in a Solvency Capital Requirement (SCR) that’s tailored to the risks in your portfolio - which in itself is advantageous. This benefit translates into more effective capital management, as it reflects the risks you actually cover (rather than the output of a standard formula). Improved operations through the internal model approach may also free capital for deployment elsewhere — if the model-determined SCR is lower than that from the Solvency II standard formula. The newly available capital can be invested in any number of initiatives that can lead to a competitive advantage.

After the jump, you’ll find five ways to attain competitive compliance.

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Emil Metropoulos, Senior Vice President
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Some casualty risk accumulations stay hidden, but this doesn’t mean your exposure disappears. A single event could trigger a chain reaction of insured losses on professional and product liability covers, depleting your capital and possibly destroying shareholder value. In extreme cases, even solvency could be threatened. Using Guy Carpenter’s Casualty Cat model, developed jointly with Arium, Ltd., it’s possible to identify some of these “casualty catastrophe” risks early — before they drain your balance sheet.

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Emil Metropoulos, Senior Vice President
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Some workers compensation risks seem too difficult to cover. Excess loss rates are unpredictable, on the rise and difficult to analyze with the conventional tools. And, reinsurance may not be available at some layers. A carrier that can find ways to write business for these groups, however, can identify a revenue opportunity ahead of its competitors. Together, reliable modeling and disciplined underwriting can open new markets in a mature industry in which peers tend to look for merely incremental advantages. Using Guy Carpenter’s Reveal® v1.1 excess loss model, now available through the i-aXs® platform, workers compensation carriers can identify the drivers of severity at the class code level, making it possible to develop a plan for protecting capital and profitability.

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Susan Witcraft, Managing Director, Financial Intelligence Team
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No single approach to capital allocation is objectively superior. Those that are more effective require an investment of time and resources, while the simpler methods sacrifice accuracy. A tradeoff is required based on a (re)insurer’s priorities and capabilities. Before you make a choice, however, be sure you’re aware of the alternatives.

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By John Tedeschi, ACAS, MAAA, Managing Director and Chief of Catastrophe Modeling
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Catastrophe models don’t make decisions: they merely inform risk managers. To get more out of catastrophe models, therefore, you need to look at how they are used now — and where there’s room for improvement. Catastrophe model use still has untapped potential, which means you could have a hidden revenue and profit opportunity in your portfolio. Optimize how you work with catastrophe models, and you could make your capital more productive.

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Susan Witcraft, Managing Director, Financial Intelligence Team
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The financial catastrophe may be almost a year behind us, but we’re still dealing with the effects. Capital remains constrained, and it will be a while before balance sheets return to early 2008 levels. (Re)insurers have had to learn to do more with less — deploying limited capital in a way that maximizes earnings and reaches challenging return on equity (ROE) targets. With MetaRisk®, Guy Carpenter’s economic capital model, you can delve into the scenarios that could mean the difference between capital productivity and missed opportunity.

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