Jyoti Majumdar 19 May 4th Seminar on Current Issues in General Insurance The big problem One of the solutions Expanding the horizon QampA Agenda 2 I ncreasing values Concentration in exposed areas ID: 618520
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Slide1
Actuarial role/ contributions/ challenges in Reinsurance
Jyoti Majumdar, 19 May, 4th Seminar on Current Issues in General InsuranceSlide2
The big problemOne of the solutions
Expanding the horizonQ&A
Agenda
2Slide3
I
ncreasing values
Concentration in exposed areas
Insurance
penetration
Changing hazard
climate variability
climate change
What is the ‘
big’ problem?
3
Insured vs uninsured losses 1970–2016in USD billion, at 2016 pricesSlide4
Regional overview
4
Source: Cat Perils and Swiss Re Institute.Slide5
Risk Assessment: Risk premium for natural perils?
5
Natural
Catastrophes…
Are rare
Are random
Affect vast areas – thousands up to millions of risks affected at the same time; heavy accumulation
No sufficient loss experience!
Need for scientific risk assessmentSlide6
Nat Cat risk assessment: Natural (Cat) Perils vs. other Perils
6
Risk size
Frequency
Loss
potential
Risk assessment
single buildinghigh
low-moderateexperience
large portfolio
low
moderate-very high
scientific/exposure based
Fire Natural perilsSlide7
7
Characteristics
Experience
Exposure
Exposure rating vs. Experience rating
Main differences of the two rating methods
Are
specific risk characteristics
considered?
Do
we
consider
the loss history
Are
we applying market
assumptions?
Are changes in the portfolio
considered?
Is
the actual exposure
considered?
Driving a car by looking (mainly) in the rear mirror Slide8
8
Assisted driving ???Slide9
A Cat Model determines the potential loss to a client’s exposure from natural perils like - wind, earthquake, flooding [Aon Benfield]
Catastrophe modeling is the process of using computer-assisted calculations to estimate the losses that could be sustained due to a catastrophic event such as a hurricane or earthquake [Wiki/Swiss Re]
A cat model is a computerized system that generates a robust set of simulated events and estimates the magnitude, intensity, and location of the event to determine the amount of damage and calculate the insured loss as a result of a catastrophic event such as a hurricane or an earthquake [Lloyd's Market Association]
Definitions of Catastrophe Model/Modelling
9Slide10
Catastrophe covers are large and complexData is the keyMultidisciplinary approach is required
All models are wrong, some of them are useful
Catastrophe models
10Slide11
Four Elements to Model Losses – Four Box Principle
What is covered?Where? How?
Hazard
Vulnerability
Value distribution
Coverage conditions
How often? How strong?
How well built and protected?
11
Four box model – simplified
1. What’s the chance of an earthquake occurring?
2
.
What’s
the chance that it does damage
?
3.
What’s the chance that it affects me
?
4. How much will it cost me?Slide12
Four Box Principle: A multidisciplinary approach
12
Natural Hazard
Vulnerability
Distribution of property values
Where and how often and with what intensity do events
occur.
Natural sciences
Example
Hurricane “Charley”
Aug 2004
Extent
of damage to exposed values at a given event
intensity.
Civil and structural engineering
Location of Insured objects and how high is their
value.
Geoinformatics
What proportion of loss is
insured
Mathematics, Statistics
Limit
Deductible
Insurance
conditionsSlide13
Expanding the horizon
Insurance Linked Securities (ILS)
13Slide14
Insurance Linked Securities (ILS)
14
Since its inception in 1996,
the market
for insurance-linked
securities (ILS
)
as witnessed robust growth worldwide. Re/insurers, governments and corporations continue to access capital market solutions to finance growth, manage capital and transfer risk related to extreme events. Swiss
Re is a pioneer in the development of transparent and tradable insurance-linked
securities.Slide15
What are Insurance L
inked Securities (ILS)?
Natural catastrophe
b
onds (cat
bonds) and other types of ILS are issued in order to provide re-/insurance protection to insurers, reinsurers, governments, and corporations
Cat bonds allow companies to obtain reinsurance protection from a new pool of capital separate from traditional reinsurers
Money managers, hedge funds, and pension funds represent a new pool of capital for insurers and reinsurers to gain protection from
Investor capital provides collateralized cover
Investor capital sits in a segregated collateral account, meaning that if an event occurs, dedicated funds are available to make a payment
This virtually eliminates the credit risk inherent in traditional re-/insurance
15Slide16
16
Concern about counterparty credit risk in case of a large event
Shortage/pricing of available traditional capacity
e.g. companies with large reinsurance programs, peak
perils
Diversifying sources of capacity
Reducing dependency on one just one
market
Structural features that the traditional markets have difficulty providing in size at the right price
Aggregate, second event, drop down, etc.
Multi-year pricing stability (3 – 5 year term is typical for cat bonds)
Why do
sponsors
c
onsider
c
at
b
onds
?Slide17
Cat bond: triggers
17Slide18
18Slide19
Legal notice
19
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