For bodily injury claim settlements in Europe, the trend is shifting away from lump sums and towards annuity-type settlements, which come with risks related to longevity, inflation and hedging. Insurance companies with significant casualty business may see their risk profiles transform over time to be more like pensions funds - but without working members and with even longer lasting liabilities. While the insurance industry is beginning to understand the implications of this move to annuity settlements, it does not have a clear understanding of the implications for an increasingly important regulatory balance sheet metric: Risk Margin.
Posts Tagged ‘Solvency II’
Victoria Jenkins, Managing Director, and Jessica Leong, Lead Casualty Specialty Actuary
Can we learn from Solvency II to unlock the hidden value of reinsurance for long-tail business?
Reinsurance on a long-tail business such as casualty provides lasting capital benefits until the complete run off of the underlying business. It not only reduces underwriting risk, but also the future reserve risk for that book of business. Yet how many companies are properly considering this multi-year capital relief in their reinsurance decision-making? Solvency II’s one-year risk horizon has the potential to draw attention away from the multi-year risk compared to the current Individual Capital Assessment regime. The complexity of creating a comprehensive multi-year capital model means that in our experience many companies are not focusing on the multi-year risk of long-tail business when considering their reinsurance strategy.
Here we review recent GC Capital Ideas stories that have touched on issues relating to the Solvency II regime.
Guy Carpenter today announced the release of MetaRisk® 7.1, the latest version of the firm’s premier risk and capital management decision making tool. The platform offers access to a variety of new features and enhancements that will improve usability, increase overall functionality and enable the development of more accurate and efficient risk and capital models.
Comparing Solvency II Standard Scenarios for Windstorms with Catastrophe Model Outcomes – Updated Study: Part II
Benchmarking QIS5 Scenario Return Period against Vendor Models
Our analysis supports the fact that losses in the QIS5 windstorm scenarios are often within the range of the major vendor models. But how do return frequencies compare? The QIS5 standard scenarios are tailored to represent a 200 year return period in each territory. Looking at the QIS5 loss estimate on the modeled exceedance probability curves reveals the corresponding modeled return period. Plotting the implied vendor model return frequencies against the QIS5 scenarios’ 1-in-200 year level yields an interesting (albeit similar) spread, as shown in Table 1.
Click here to read Part I >>
Comparing Solvency II Standard Scenarios for Windstorms with Catastrophe Model Outcomes – Updated Study: Part I
With the generalized use of catastrophe models to measure the natural catastrophe exposure of insurance portfolios, the outcomes of these models have more and more influence in the determination of reinsurance needs. With the introduction of the Solvency II regime, the decision on reinsurance purchase should also be an integral part of a company’s risk management process. Specifically, an important consideration is the impact of reinsurance contracts on the Solvency Capital Ratio, a key decision metric of the risk management process. This process is not always easy when the probable maximum losses (PMLs) derived by the cat models differ from the standard European scenarios under Solvency II for calculation of the Solvency Capital Requirement for cat risk (SCRCat).
Here we highlight GC Capital Ideas’ recent top stories covering the evolving Solvency II capital requirements regime.
Here we highlight recent insurance thought leadership from Guy Carpenter’s sister companies.
Guy Carpenter sister company, Oliver Wyman, has published a new report on Solvency II. The road to implementing Solvency II has been longer and more circuitous than expected. In Oliver Wyman’s joint report with Morgan Stanley, Solvency II: A Long and Winding Road, they provide insights on implementation progress thus far. The report also discusses key debates in the industry, which will have a significant impact upon the insurance landscape across Europe, including: