Posts Tagged ‘Reinsurance’



December 18th, 2014

Cycle Mitigation: Part II

Posted at 1:00 AM ET

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.

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December 17th, 2014

Cycle Mitigation: Part I

Posted at 1:00 AM ET

So what can be done to mitigate such cyclical effects? The first steps are to acknowledge them and to try to quantify their impact. The latter is more of a challenge than the former. Most internal capital models are not truly multiyear and arguably fail to adequately capture both the correlation between lines of business and in particular across accident years. Cycle (and recognition pattern) scenario testing is a good way to achieve this. This provides a neat and practical way to correlate between years and lines of business.

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December 16th, 2014

Impact on Results

Posted at 1:00 AM ET

To consider the impact that these cycles may have on the financial statements and solvency positions of insurers there has to be an understanding of the magnitude of any change in ultimate loss and the likely timing of the recognition of that change. The profit or loss in any financial year is a combination of the profit and loss from that accident year and also any recognized changes in the reserves from prior years.

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December 4th, 2014

Casualty Catastrophe Risk Modeling: Part II

Posted at 1:00 AM ET

Casualty catastrophe occurrences have become increasingly common over the past decade. The recent 2008 financial catastrophe is the easiest to cite, due to its sheer size and the fact that it continues to unfold even today. But, there have been many others. The collapse of the “dotcom economy” led to scandals around initial public offering laddering and equity analyst conflicts of interest. Accounting firms were not alone in suffering financial loss related to such debacles as Enron, WorldCom, Tyco and Adelphia. While insured losses did not reach those of property catastrophes, economic damages were profound. Enron’s loss of USD66 billion in market capitalization alone - not including the economic damage caused to other companies - was more than double that of Hurricane Ike (approximately USD30 billion). The financial catastrophe is estimated to have caused economic damage of above USD1 trillion, with more likely to follow. When considered in the context of the Deepwater Horizon industrial accident, the casualty catastrophe that unraveled from the largest US offshore energy event over the past 40 years was by no means remote. Beyond the initial property loss of the actual drilling rig, liability risk in paying claims continues to extend and ripple throughout the supply chain involved as well as the environmental impact to numerous coastal and commercial businesses. Asbestos litigation, perhaps the longest casualty catastrophe on record, has paid out over USD70 billion and by some accounts may be entering its third wave. Therefore, asbestos is an emerging crystalizing risk that needs to be continuously monitored, measured and modeled for those who continue to be exposed to it.

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December 3rd, 2014

Casualty Catastrophe Risk Modeling: Part I

Posted at 1:00 AM ET

Casualty (or liability based) catastrophes have become increasingly frequent and severe over the past decade, exposing (re)insurers to much more risk than they may have realized and reserved for. One root cause can trigger a chain reaction that can bleed balance sheets and even imperil solvency. Until recently, casualty carriers had little choice but to accept this risk as losses emerged.

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November 25th, 2014

Emerging Risk: Commercial Terrorism Models

Posted at 1:00 AM ET

The catastrophe modeling companies have regularly updated their terrorism models over the years to reflect the changing threat landscape and help (re)insurers and other market participants perform robust terrorism risk assessments. Such updated products from RMS and AIR include:

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November 24th, 2014

Modeling Terrorism

Posted at 1:00 AM ET

Modeling methodologies for terrorism have been continually refined and updated since the three major modeling companies - AIR Worldwide (AIR), EQECAT and Risk Management Solutions (RMS) - released their first terrorism models in 2002. Quantifying the economic, insured and human losses from a terrorist attack continues to pose major challenges for (re)insurers and alternative capacity providers. There are three main techniques to model terrorism risk:

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November 17th, 2014

Compensation “Emerging Risks”

Posted at 1:00 AM ET

From an “emerging risks” perspective it can be seen that the inadequacies of the “lump sum” method of compensation have been highlighted by a number of systemic factors:

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November 12th, 2014

Cyber-attacks and Terrorism Revealed as Top Emerging Risks for 2015, According to Annual Guy Carpenter Survey

Posted at 5:30 AM ET

Cyber-attacks and terrorism are ranked among the top emerging risks concerning the (re)insurance industry in the year ahead, according to a survey released today by Guy Carpenter. According to the findings, new products, expansion into new geographic markets and access to new distribution channels will be the primary drivers of profitable growth in 2015. 

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November 11th, 2014

Cyber-Related Risk to Critical Infrastructure

Posted at 1:00 AM ET

The table shows the sectors identified as critical by both the US government in the recent Presidential Policy Directive 21, and by the European Commission, as stated in the proposal, Directive on European Critical Infrastructure.

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