Social and environmental risks have supplanted economic ones as issues of greatest concern among respondents to the Global Risks Perception Survey. The survey was completed by almost 750 members of the World Economic Forum’s global multistakeholder community and the results analyzed in the World Economic Forum 2017 Global Risks Report, which was published by the World Economic Forum with support from Marsh & McLennan Companies and other partners.
Posts Tagged ‘emerging risks’
Emma Karhan, Managing Director
The (re)insurance industry needs to be more proactive in understanding and defining the boundary and extent of insured loss along with understanding the types of targets that have a higher probability of attack. Data in the Global Terrorism Database (1) identifies small businesses, retailers, tourist attractions and transportation hubs as increasingly likely targets, not iconic targets such as New York’s World Trade Center, in 2001. These smaller and less iconic targets are typically more vulnerable to the evolving type of terrorism attack (marauding arms, small explosives) that, while causing smaller direct physical damage and losses, still have the potential for significant contingent losses.
The Global Risks Report 2017, produced by the World Economic Forum with support from Marsh & McLennan Companies and other partners, was published this week. Now in its twelfth edition, the report provides insights into the key global risks facing businesses as well as the collective view of risk experts in all sectors as to the most significant threats to global prosperity over the next decade. The Global Risks Report 2017 will inform discussions at the World Economic Forum’s annual meeting next week in Davos, Switzerland.
Public Sector Risk Financing Perspectives in Europe/Middle East/Africa: Part IV: Closing the Protection Gap
Chart examines the policy coverage matrix between cyber and property lines of insurance coverage. Below shows how the four types of subject matter (columns A-D) are generally covered by direct policies, relative to the various types of cyber and property perils (rows 1-5). Where cover is predominantly provided by property or cyber, the relevant icon is shown in blue. Where there is a degree of ambiguity, or coverage is limited, the icon is shown in gray.
Chart highlights the result of a survey taken of 107 insurance and reinsurance professionals conducted by Guy Carpenter at the 2016 annual meeting of the Property Casualty Insurers Association of America when asked which emerging risks will be the biggest threat to profitable growth.
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.