David Flandro, Global Head of Business Intelligence, Julian Alovisi, Assistant Vice President, Lucy Dalimonte, Senior Vice President, Ellen Rieder, Managing Director and Emma Karhan, Senior Vice President
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Since the devastating terrorist attacks of September 11, 2001, the (re)insurance sector has focused primarily on the potential for similar attacks in major metropolitan areas around the world. The threat posed by transnational terrorists, and al-Qaeda in particular, has dominated (re)insurers’ approach to terrorism risks. However, as described in Section 1 of this report, the nature of the terrorist threat has evolved in recent years. The core al-Qaeda group has been weakened by the deaths and arrests of several key leaders and improved counter-terrorism strategies. These developments have hindered al-Qaeda’s ability to launch spectacular attacks in the United States and other Western nations and prompted regional affiliate groups to independently strengthen and increasingly target Western interests around the world.

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David Flandro, Global Head of Business Intelligence, Julian Alovisi, Assistant Vice President, Lucy Dalimonte, Senior Vice President, Ellen Rieder, Managing Director and Emma Karhan, Senior Vice President
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By utilizing such information, (re)insurers have improved their awareness of the threat posed by terrorists. Although there are significant challenges when attempting to predict and react to events, companies continue to seek to identify new risks as they arise.

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David Flandro, Global Head of Business Intelligence, Julian Alovisi, Assistant Vice President, Lucy Dalimonte, Senior Vice President, Ellen Rieder, Managing Director and Emma Karhan, Senior Vice President
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The increasingly diverse and dispersed threat has seen worldwide terrorist activity rise in recent years. The number of global terrorist attacks peaked at more than 14,400 in 2006 (see Figure 1). Although there has been a general decline in the number of attacks over the last five years, they remain at historically high levels.

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David Flandro, Global Head of Business Intelligence, Julian Alovisi, Assistant Vice President, Lucy Dalimonte, Senior Vice President, Ellen Rieder, Managing Director and Emma Karhan, Senior Vice President
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Al-Qaeda Core Group

Al-Qaeda suffered a massive setback when U.S. forces killed Osama bin Laden in Pakistan in May 2011. The death of bin Laden was a huge blow to the al-Qaeda core group and represented the most significant counter-terrorism success for the United States to date. This, along with the demise of several other senior al-Qaeda figures in drone strike attacks in Pakistan, has weakened the core group’s capability to conduct spectacular attacks against Western countries. Nevertheless, al-Qaeda’s ideology and threat remain, and its aspiration to carry out large-scale attacks against Western interests has been reinforced by the new leadership of Ayman al-Zawahiri.

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David Flandro, Global Head of Business Intelligence, Julian Alovisi, Assistant Vice President, Lucy Dalimonte, Senior Vice President, Ellen Rieder, Managing Director and Emma Karhan, Senior Vice President
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The global terrorism landscape, and the threat posed by fundamentalist Islamic terrorists in particular, has changed dramatically since the catastrophic events of September 11, 2001. Before these attacks, al-Qaeda had a well-funded and centralized leadership that enabled it to generally operate under the radar of intelligence agencies and to plan large-scale and spectacular attacks. Since then, military operations in Afghanistan and Pakistan and the killing of several key terrorist operatives have marginalized the core al-Qaeda group. This, coupled with close counter-terrorism collaboration between Western nations, as recently demonstrated by the extradition of Abu Hamza from the United Kingdom to the United States, has prevented al-Qaeda’s core from executing other large-scale attacks on the scale of September 11, 2001.

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David Flandro, Global Head of Business Intelligence, Julian Alovisi, Assistant Vice President and Lucy Dalimonte, Senior Vice President
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Guy Carpenter is uniquely positioned to help clients successfully grow their business in emerging markets. Our GC Global Analytics and Advisory team offers services and solutions that include industry-leading risk analytics, strategic and technical advice and capital advisory. We employ over 300 modeling, actuarial and advisory professionals through our GC Analytics®**, Global Advisory and GC Securities* teams who closely collaborate with Guy Carpenter’s global broking force to deliver the best insights and growth opportunities to our clients. We encourage you to contact your Guy Carpenter representative to review and discuss your modeling, advisory and capital needs in more detail. Among the specific services and tools we utilize and offer are proprietary modeling, the i-aXs® data management platform, MetaRisk®, portfolio management, predictive analytics, advisory services and actuarial expertise.

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David Flandro, Global Head of Business Intelligence, Julian Alovisi, Assistant Vice President and Lucy Dalimonte, Senior Vice President
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Aggregate Covers

Reinsurance remains the best form of protection against catastrophe losses. Following the increased frequency of major catastrophic events witnessed in 2010 and 2011, many companies are revisiting the benefits of aggregate coverage. Aggregate coverage has long been offered in the reinsurance market because it is a solution that focuses on mitigating the impact of the frequency of loss. While much of the focus for catastrophe coverage is around severe shock losses, aggregates are also useful for horizontal coverage needs or a combination of frequency and severity.

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David Flandro, Global Head of Business Intelligence, Julian Alovisi, Assistant Vice President and Lucy Dalimonte, Senior Vice President
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Making use of all available tools and practicing comprehensive exposure management will both strengthen (re)insurers’ ERM practices and allow them to make informed risk management and reinsurance decisions as they enter new markets. Certainly, flood risk is prevalent and increasing in almost every developing economy. Recent studies by Swiss Re (1) and the Organisation of Economic Co-operation and Development (OECD) (2) suggest flood loss potential will grow as emerging economies continue to prosper.

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David Flandro, Global Head of Business Intelligence, Julian Alovisi, Assistant Vice President and Lucy Dalimonte, Senior Vice President
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Despite such important model limitations for earthquakes, the lack of modeling solutions for flood risks poses an even greater threat to (re)insurers. As illustrated by Figure 7 below, flood risk is poorly modeled at a global level by the three main modeling companies, particularly in developing countries where flooding is a regular occurrence.

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David Flandro, Global Head of Business Intelligence, Julian Alovisi, Assistant Vice President and Lucy Dalimonte, Senior Vice President
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Natural disaster risk assessment relies on probabilistic catastrophe models and historical data. The three main catastrophe modeling companies, AIR Worldwide (AIR), EQECAT and Risk Management Solutions (RMS), have therefore traditionally created modeling solutions for perils and territories considered to be peak risks. Although each modeling company has in recent years launched products for countries outside the more established markets of the United States and Western Europe, several gaps in coverage remain, particularly in emerging markets. This means that (re)insurers are currently struggling to monitor and measure their exposures in non-modeled countries. Moreover, for the models that exist, it is important that (re)insurers are aware of their limitations and consider the impact that these shortcomings have on their ability to control and price their risk exposures.

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