AIR’s catastrophe risk management services leverage our industry leading modeling technologies to quantify our clients’ exposure to catastrophe risk so that they can make optimal risk management, risk transfer and risk mitigation decisions that align with their corporate goals.
Risk Assessment
The starting point of a catastrophe risk assessment is a thorough understanding of our client’s catastrophe risk profile. However, even before the analysis begins, an extensive data review and validation process is performed to ensure the accurate representation of exposure data—thereby ensuring the most reliable results.
Probabilities are then estimated for potential levels of loss that a company may experience given their portfolio of exposures. Results provide the necessary detail to determine which perils, regions, lines of business, policy forms, etc., have the greatest marginal impact on the company's large loss potential, including such metrics as probable maximum losses (PML) and tail value at risk (TVaR).
Underwriting and Mitigation Studies
Results of the catastrophe risk assessment can provide guidance for enhancing underwriting and pricing strategies. Detailed sensitivity analyses allow clients the flexibility to review territory definitions, evaluate the impact of altering policy conditions, and quantify a reasonable per diem value for additional living expense or business interruption coverage.
A detailed analysis of how a property’s structural characteristics affect its vulnerability to natural hazards and how modifications to those characteristics impact potential losses can help clients plan their overall catastrophe loss reduction program. AIR’s consultants perform sensitivity analyses to help clients determine the appropriate level of credit for the presence of various loss mitigation devices.
Solvency & Enterprise Risk Management
Enterprise Risk Management initiatives and practices abound in the insurance and reinsurance sectors, with rating agencies and regulators closely monitoring efforts and results. ERM is a framework for identifying, measuring, monitoring, and managing a wide variety of risks, both independently and in combination.
The risks most prominent in ERM are, almost by definition, those that materially impact the financial strength of a company and therefore matter the most when issuing a rating or regulatory status. In many cases, catastrophic risk presents the greatest threat to solvency. Thanks in large part to the evolution of catastrophe models over the past 20 years, catastrophe risk also among the most quantifiable components of the risk map used in ERM processes.
AIR’s actuarial consultants work with our clients to integrate the measurement and management of catastrophe risk into their ERM framework. They also assist clients in completing rating agency analysis, such as AM Best’s Supplemental Rating Questionnaire (SRQ) and Fitch’s Prism capital model. Finally, AIR consultants advise clients on the efficacy and risk profile of financial protection programs, such as reinsurance and securitizations.
Ratemaking and Regulatory Support:
Catastrophes, by their very nature, are infrequent, severe, and unpredictable, making the use of scarce and erratic historical losses for pricing purposes problematic. The actuarial standards of practice (ASOPs) explicitly allow the use of catastrophe risk modeling results as a substitute for historical claims in ratemaking, but only with certain accountabilities for the comprehension, interpretation and use of results.
AIR’s consultants advise our clients on ratemaking, particularly in regulated environments, and the appropriate application of Standards of Practice in using model results. We assist in answering questions posed by regulators, provide expert testimony on behalf of clients at rate hearings, and offer best practices for filing rates with proper consideration of overall catastrophe risk and its allocation to territories and rating classes. We also help clients design rating plans based on risk mitigation features.
Portfolio Optimization and Management
Insurers operate within a fast-moving, competitive, yet highly regulated environment that can challenge their ability to achieve consistent, profitable growth. AIR actuarial consultants combine detailed understanding of client catastrophe risk profiles with deep knowledge of the insurance products and market dynamics to identify efficient frontiers for growth given a regulated pricing structure.
Strategies including bulk residual market takeouts, organic growth incentives to producers, acquisition of books of business, and targeted retraction in overexposed areas can be tested by means of the "what if" scenario analyses that catastrophe models are so well suited to perform. Combining model results with rating algorithms and cost structures yields a powerful cost-benefit analysis of a range of actions.
Listed below are additional materials of interest on the assessment and management of catastrophe risk: