Posts Tagged ‘Models’
As we approach the April 2015 reinsurance renewal, we look back at the Jan. 1 renewal.
Here we review recent GC Capital Idea stories on catastrophe models that focus on exposures beyond catastrophe property risk:
Guillermo Franco, Head of Catastrophe Risk Research - EMEA
Destruction caused by catastrophes often unfolds due to inadequate construction practices or land use planning. The likely response to these events is to strive to “build back better,” in part by addressing the mistakes of the past. Unfortunately, communities that embrace this challenge often find that they lack the financial resources for it and ambitious reconstruction projects lose momentum.
Here we review recent GC Capital Ideas stories on how better analytics can support (re)insurers’ capital modeling and benchmarking.
Eric Paire, Head of Strategic Advisory EMEA, Guy Carpenter, presented the sixth part of the Holistic Balance Sheet Management series describing the “multi-layer” approach that Guy Carpenter and Mercer will adopt when working exclusively with insurance clients to holistically manage capital and strengthen balance sheets. The approach includes an extensive evaluation of the investment and reinsurance portfolios to understand client needs, an assessment of the rationale for freeing-up and/or moving capital and a consideration of modeling aspects such as the Solvency II standard formula, internal models or rating agency models.
In the second video in the Holistic Balance Sheet Management series, Andrew Cox, Capital Optimization, Guy Carpenter and Niall Clifford, Financial Strategy Group, Mercer, explore how companies should approach investment risk and the link between investment strategy, risk appetite and reinsurance strategy. A key focus for insurance companies should be to link their investment strategy with their risk appetite metrics. While any increase in return on capital may seem very attractive, it is important that companies ensure that the risks they are taking are in line with their risk appetite and that they are aware of their constraints, allowing them to take risks in a measured way. Investment strategy should be considered alongside regulatory requirements, as a key aspect of Solvency II relates to how well each company understands the risks in its portfolio.
Guy Carpenter reports reinsurance pricing fell at the January 1, 2015 renewals in many segments, affecting almost all lines of business and geographies, continuing recent renewal trends.
Incorporating reserve value added (RVA) into reinsurance decision making for long-tail lines is a step in the right direction. However, it is not the full story, as the decision is still typically made in the context of a single accident year and usually for a single line of business in isolation. The cycle correlations clearly show that this is sub-optimal. We are encouraging our clients a step further along the sophistication and hence simplicity/complexity spectrum.