Posts Tagged ‘Models’



February 11th, 2016

Meeting the Challenges: Catastrophe Modeling

Posted at 1:00 AM ET

In realizing the goal of profitable growth, (re)insurers require a trusted partner to help them manage a rapidly evolving regulatory and rating agency environment.

Catastrophe Modeling

The insurance industry relies to a large extent on catastrophe models to manage catastrophe risk. Regulators and rating agencies recognize this fact by asking companies to justify their modeling approach. The underlying objective of such rules is to encourage companies to have a robust and consistent process to use modeling tools responsibly.

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February 2nd, 2016

Addressing Own Risk and Solvency Assessment/Enterprise Risk Management and Insurance Capital Standard Globally

Posted at 1:00 AM ET

In accordance with the objectives of the National Association of Insurance Commissioners (NAIC) and European Insurance and Occupational Pension Authority (EIOPA), Own Risk and Solvency Assessment (ORSA) is “people and risk-centric,” primarily employing a principles-based approach, as opposed to a rules-based approach. This means that decisions on matters related to risks are largely based on the judgment of individuals relying on underlying facts, as opposed to decisions being made mostly by following intricate sets of rules. This is similar to the principles-based approach taken by International Financial Reporting Standards (IFRS). Although the calculation of the Solvency Capital Requirements (SCR) under Solvency II is rules based, like Insurance Capital Standard (ICS), Solvency II can be a “one size fits all” rules-based approach to capital, especially if the standard formula is used. (Re)insurers will need to find a way to incorporate ICS into their ORSA processes and the vehicle to accomplish this may be through the internal model.

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December 10th, 2015

The Rise of Emerging Risk and Casualty Catastrophe Models

Posted at 1:00 AM ET

The modeling of emerging and casualty catastrophe risks remains challenging and the models continue to vary in their approach, level of development and industry acceptance. With the potential scenarios numerous, diverse and constantly changing, there is no single model or approach that could contemplate all of them. Furthermore, the various disaster scenarios with which carriers are being increasingly confronted needs to be prioritized and synthesized within their enterprise risk management framework. By their very definition, there may be limited data on hand on which to base any modeling. As a result, much of the industry continues to rely on multiple models and actuarial approaches that encompass model applications, probable maximum loss (PML) estimates, realistic disaster scenarios, experience and exposure ratings to create a broad set of scenarios and deterministic views.

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December 3rd, 2015

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

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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November 25th, 2015

Tracking and Modeling New Integrated, Intricate Technology Risks

Posted at 1:00 AM ET

Casualty (re)insurers do not cover standalone emerging risks. A product defect (with recall) or a latent bodily injury resulting from new technological nano-products or Unmanned Aerial Systems risks, could lead to class action lawsuits and ultimately large liability claims including products liability as well as professional liability. This emergent reality, however, is difficult to address. A carrier would need to identify and model several possible epicenters of a liability chain reaction and follow their rapidly spreading implications throughout a portfolio. Without new powerful casualty modeling capabilities as well as highly granular data on the products and subcomponents that each of their insureds manufacture and sell globally, this process would be time-consuming, impossible to complete and likely to miss key threats and underlying exposures.

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November 11th, 2015

Longevity Risk

Posted at 1:00 AM ET

The impacts to society from changes in longevity and life expectancy will be wide-ranging and incredibly difficult issues to grapple with. A 2012 International Monetary Fund (IMF) study revealed that if individuals lived three years longer than expected the cost of aging could increase by 50 percent. This translates to 50 percent of 2010 gross domestic product (GDP) in advanced economies and 25 percent of 2010 GDP in emerging economies. Globally that amounts to tens of trillions of US dollars. The United Nations expects the aggregate expenses of the elderly will double over the period between 2010 and 2050. The figure below shows the projected trend of rising life expectancy to continue in all regions of the globe regardless of economic advancement.

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November 9th, 2015

Cyber Risk Management

Posted at 1:00 AM ET

Cyber risk is already an embedded feature of the global risk landscape, not only as a privacy/network liability, but also as a peril affecting traditional insurance lines. As such, insurance has the potential to greatly enhance cyber risk management and resilience for a wide range of organizations and individuals who are exposed to its impacts. Nevertheless, the likelihood and impact of severe events remain subject to much uncertainty and the pace of insurance innovation should be linked to the rate at which this uncertainty can be reduced (1).

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October 28th, 2015

Cyber Risk

Posted at 1:00 AM ET

ross_christopher-smChristopher Ross, Managing Director

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As businesses, both large and small, throughout all sectors of industry, become more and more reliant on technology to improve service efficiencies and functionalities, cyber risk has become one of the most pressing public topics addressed in corporate boardrooms and by governments across the globe. The corresponding awareness of a business’s susceptibility to a cyber-attack has grown along with a spate of high-profile attacks. Consequently, cyber risk is now an embedded feature of the global risk landscape, not only as a privacy/network liability, which is where much of the publicity has arisen, but also as a peril affecting traditional insurance lines. Therefore, preventative and post-event remediation are gaining importance as shareholders, regulators and rating agencies are increasingly focused on enterprise risk management activities for cyber risks.

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October 26th, 2015

Stochastic-based BCAR: Do You Understand Your “Capital-print”?

Posted at 1:00 AM ET

murray_mark-smMark Murray, Senior Vice President

Technology and innovation continue to change the world around us, creating both opportunities and new challenges for the (re)insurance industry. Advances in risk quantification such as predictive analytics and capital modeling, to name a few, are changing the way we underwrite, price and manage risk. Similarly, technology is allowing A.M. Best (Best’s) to advance the analytics of risk supporting its assessment of balance sheet strength. Taking advantage of stochastic modeling technology, the evaluation of risk within Best’s capital model is undergoing a fairly substantial overhaul to broaden the lens used to analyze risk relative to capital. The technology allows efficient production of multiple capital metrics adjusted for a range of risk levels rather than risk represented by just one data point, providing deeper insights into balance sheet strength, risk profile and risk appetite. The benefit of this overhaul will be a rating that provides greater differentiation among companies, a more informed dialogue around capital versus risk and a more concise measure of “excess” or “deficient” capital. This new lens on capital will significantly influence the way (re)insurers view, measure, communicate and possibly even manage risk.

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October 25th, 2015

Increasing Confidence and Transparency in Your Catastrophe Risk Decisions

Posted at 1:00 AM ET

thomas_sherry_sm1james-burnett-herkes-sm1Sherry Thomas, Head of Catastrophe Management - Americas and James Burnett-Herkes, Senior Vice President

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Could you afford to find that the portfolio you just acquired in North Carolina is more exposed to hurricane than previously assumed? What if next year’s Category 2 hurricane caused a loss in excess of 15 percent of your policyholders’ surplus?  How will the changes in the U.S. Geological Survey National Seismic Hazard Maps impact your exposure to earthquake risk in the central and eastern United States?

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