Here we review GC Capital Ideas posts on the challenges bringing the public and private sectors together to manage catastrophe risk exposure.
Posts Tagged ‘risk management’
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:
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.
In addition to internal risk management, models are typically used in risk transfer negotiations. Both traditional and alternative risk markets require extensive analysis of portfolios when considering risk transfer. Sharing a portfolio’s standardized model output is critical to imparting the loss potential of a particular portfolio from which risk-capital can be unlocked to support the risk financing needs of a reinsurance buyer. Using technology is critical when partnering governments with the private sector. Whether partnering with developed or emerging economies, these tools bring together the risk knowledge and historical data of the public sector with risk management techniques of the insurance industry. The result is an enhanced understanding of risk that provides stability and attracts partners.
Marsh & McLennan Companies’ Global Risk Center has published a report, The Emerging Risks Quandary. Many companies struggle to articulate the precise relevance of global and emerging risks to their business, and are poorly organized to make timely decisions. This report explores what impedes corporate efforts and sets out how companies can blend creativity and pragmatism to look beyond predictable and controllable risks to complex uncertainties that have the potential to generate more than mere volatility in corporate earnings.
Here we review GC Capital Ideas posts on unmanned vehicle technology as an emerging risk and the challenges and opportunities it presents to (re)insurers.
Here we review GC Capital Ideas posts on the challenges (re)insurers face managing and modeling casualty catastrophe risks.
Sherry Thomas, Head of Catastrophe Management - Americas and James Burnett-Herkes, Senior Vice President
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?
Here we review recent GC Capital Ideas posts on some of the drivers behind public entities considering new approaches to risk financing.