Here we present GC Capital Ideas’ stories on analyses of enterprise risk management disclosures. A 2014 study updated the analysis done in 2009, one of our most popular stories. The full briefings are attached.
Posts Tagged ‘capital’
Here we review GC Capital Ideas posts on the benefits of enterprise risk management practices in supporting (re)insurance capital and regulatory decision making.
Here we review GC Capital Ideas posts on how alternative capital has impacted the dynamics of risk transfer.
Here we review GC Capital Ideas posts on how catastrophic exposures are adversely impacting public entities.
Here we review GC Capital Ideas posts on the use of data to help gain insights into risk and develop risk management and mitigation solutions.
From one of GC Capital Ideas’ more popular categories, we highlight the top Chart Room stories viewed during the second quarter of 2016:
Here we review recent GC Capital Ideas posts on developing changes to Best’s Capital Adequacy Ratio (BCAR) and the potential impact of those changes on (re)insurers.
The obvious response to the issues emerging risks provide is to make sure reserves and capital position are more than robust enough for any eventuality - however remote - and then release them when the risks fail to materialize. But, there are many arguments against this as a practical strategy:
The chart below attempts to illustrate the solvency calculation issue. Suppose the best estimate is 20 and the assessment from modeling is that the 1-in-200-year ultimate loss is 100. If all else stays the same and with the simplifying assumption that the yield curve stays flat, one can say that the sum of the 1-year solvency capital requirements (SCRs) approximated the difference between 100 and 20 (i.e. 80). Yet, because of the discounting, when in time the change in own funds is recognized, is important. The black line represents a linear recognition pattern so the 1-year SCRs are all equal with increments of 10. The blue line represents a Binary Fast recognition so the first year SCR is 80 and the remaining years’ SCR are zero. This means that the deterioration is recognized quickly. The red line again shows binary recognition but with a slow pattern as the movement is only occurring toward the end of the liabilities’ life. The two curves in light blue and light red represent less severe versions of the binary forms.
As discussed in the Executive Summary of this report, the term “crystalization of risk” refers to the timescale over which we realize that the risk is manifesting itself and how this view changes until ultimate understanding of quantum is reached and all liabilities are discharged. The “Reserving Risks” section in last year’s report, Ahead of the Curve: Understanding Emerging Risks looked at how information emerges in the presence of reserving cycles. The profit or loss in any particular financial year is made up of not only the profit or loss from the same accident year but also any recognized changes in the reserves on prior years.