Posts Tagged ‘risk management’
Julia Chu, Managing Director, Guy Carpenter and Ashwin Kashyap, Director of Product Management, Symantec Corporation
Cyber risk is now an embedded feature of the global risk landscape, and preventative risk management and post-event remediation are gaining importance as shareholders, customers, supply chain partners, and regulators are increasingly focused on how companies are managing for cyber risks. Insurance is becoming an important piece of the strategy for helping businesses address these risks.
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.
The gap between uninsured and insured risk continues to be an issue for the region. Insurance and reinsurance penetration rates remain low in many Asian countries. As the chart below shows, purchases in catastrophe reinsurance limit have grown, but in actual value terms the majority of growth is in territories with the highest levels of protection already.
Tim Gardner, CEO of U.S. Operations
Today’s rapidly changing global environment presents insurers with many challenges and opportunities as capital management and risk transfer techniques evolve at an unprecedented pace. Stakeholders, regulators and ratings agencies are deepening their focus on risk management practices, and revolutionary developments in technology, including the Internet of Things and hyper-connectivity, are driving companies to adapt to the challenges that senior management faces to support risk management decisions material to their business.
Insurers have long embraced the concept of risk tolerances. In some cases, the risk tolerances were expressly stated in a company’s enterprise risk management (ERM) policy document or in other cases exhibited in the course of normal operations.
Nick Frankland, CEO EMEA, Guy Carpenter
The gap between insured losses and total economic losses remains stubbornly large - Swiss Re estimates that only 30 percent of global catastrophe losses in the ten years prior to 2015 were covered by insurance. Consequently, the remainder of the loss, USD 1.3 trillion, was borne by individuals, firms and governments, and this burden is increasing. Swiss Re estimates uninsured losses more than doubled from 0.08 percent of global gross domestic product (GDP) for the ten years from 1976 through 1985 to 0.17 percent for the years 2006 through 2015.