Posts Tagged ‘loss reserves’



November 22nd, 2016

Reserving and Capital Setting: Conclusion

Posted at 1:00 AM ET

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:

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November 21st, 2016

Reserving and Capital Setting: The Crystalization of Emerging Risks, Part II

Posted at 1:00 AM ET

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.

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November 17th, 2016

Reserving and Capital Setting: The Crystalization of Emerging Risks, Part I

Posted at 1:00 AM ET

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.

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November 10th, 2016

Newest Versions of Patented Capital Modeling Tools Enhance Automation and Integration, Estimate Inflationary Risk, and Improve Run-Time: Guy Carpenter Introduces MetaRisk® Reserve™ 5 and MetaRisk® 9

Posted at 12:30 AM ET

Guy Carpenter today announced the launch of MetaRisk® ReserveTM 5 and MetaRisk® 9, the latest updates to its powerful suite of capital modeling tools built on more than 25 years of research and development.

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October 31st, 2016

Reserving and Capital Setting: Sizing the Problem, Part III: Quantifying Emerging Risks; Expert Judgement

Posted at 1:00 AM ET

Data quality and availability should also be examined in depth. Because the risks are new, the data may not be captured correctly to power the model, which will lead to further uncertainty and may even preclude the use of a model altogether.

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October 23rd, 2016

US Property/Casualty Insurers Facing Increasingly Complex Operating Environment: Guy Carpenter Report

Posted at 6:00 AM ET

balancing-risk-and-growth-in-a-changing-market-smGuy Carpenter & Company today released a study which found that, in a challenging operating environment, only 40 of the top 100 US property/casualty (P&C) insurers reported an underwriting profit over the last five accident years.

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October 20th, 2016

Reserving and Capital Setting: Sizing the Problem, Part II: Quantifying Emerging Risks; Models

Posted at 1:00 AM ET

Once the risks have been identified and ranked, the next step is how to quantify the likely impact on the financial results of the firm. The first and most obvious question is what available quantification techniques are available for each risk on the list. This will depend on the availability of relevant data and commercially produced models.

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October 19th, 2016

Reserving and Capital Setting: Sizing the Problem, Part I: Identifying Emerging Risks

Posted at 1:00 AM ET

There are three main questions to be tackled in sequence:

1. Which emerging risks potentially expose my company?

2. What means do I have to quantify those risks?

3. How are these risks likely to crystalize?

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October 18th, 2016

Reserving and Capital Setting: Background and Challenges

Posted at 1:00 AM ET

Loss reserves are arguably one of the most difficult risks to estimate and monitor. In fact, inadequate pricing and deficient loss reserves have been the leading cause of property/casualty company impairments. According to A.M. Best, from 1969 to 2009 they triggered approximately 40 percent of all impairments - four times more than those emanating from natural catastrophes (1). There are many uncertainties in managing long-tailed, heavily legislated lines of business that can be triggered from emerging risks. Unforeseen inflation and anticipated legislative changes over a 10 to 30 year period present many demands. In order to prepare for emerging risk scenarios, future trends and related uncertainties need to be explicitly identified, contemplated and estimated.

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August 30th, 2016

Reserving and Capital Setting: Background and Challenges

Posted at 1:00 AM ET

Loss reserves are arguably one of the most difficult risks to estimate and monitor. In fact, inadequate pricing and deficient loss reserves have been the leading cause of property/casualty company impairments. According to A.M. Best, from 1969 to 2009 they triggered approximately 40 percent of all impairments - four times more than those emanating from natural catastrophes (1). There are many uncertainties in managing long-tailed, heavily legislated lines of business that can be triggered from emerging risks. Unforeseen inflation and anticipated legislative changes over a 10 to 30 year period present many demands. In order to prepare for emerging risk scenarios, future trends and related uncertainties need to be explicitly identified, contemplated and estimated.

Continue reading…