Page 17 - Life Insurance Today June 2015 SAMPLE
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risk that the sidecar cannot meet its reinsurance obligations RM needs to ensure that Underwriting identifies coverage
to the cedant in an extreme event. triggers, lines of business potentially exposed, limits,
accumulation potential across lines of business and policy
RM should consider and be aware that many alternative years, reinsurance applicability and monitors developments
sources of reinsurance are transacted with capital that may broadly in the insurance, healthcare and legal arenas.
be more opportunistic than traditional reinsurance. This Mitigation actions need to be agreed with Underwriting
capital may disappear if terms and conditions are not ideal. regarding coverage, limit and volume restrictions,
reinsurance protection and monitoring of potential
Post -event large loss reviews: Insight into the accumulations. RM is a key driver in determining the
importance of identifying emerging risks, designing actions
effectiveness of the myriad individual account underwriting to contain unintended accumulations and monitoring that
processes, concentration monitoring and management, risk measures are effectively in place.
data collection and operational risk can be gained through
a systematic review of large losses in a collaborative effort Correlated Risk: Assessing the degree of correlation
between underwriting and RM.
between lines of business and for each line to other risk
Incidents that lead to insured losses happen. That's why types is a critical requirement. It is necessary to determine
people and companies buy insurance. But insight into risk capital and optimize the mix by line, limits exposed and
adherence to relevant guidelines when the risk was volume in order to minimize required capital through
underwritten and the impact the risk has had on the various diversification.
concentration management measures can provide
Underwriting and RM with valuable information. Relevant experience may well be very limited for analyzing
correlations, especially at the critical stress levels most
Emerging risks: Emerging risks are exposures which may important to risk capital determinations. Hence, RM
generally needs to work closely with Underwriting to
develop or already exist. They are difficult to quantify, may judgmentally assess and agree the degree of correlation.
have a high loss potential and are marked by a high degree
of uncertainty. Risks involving emerging technologies or As an example, property and business interruption
environmental changes require identification, assessment, coverage may generally be seen as having a very low
monitoring and mitigation. Examples of such emerging risks correlation with casualty coverage. An incident causing a
would include nanotechnology, pandemics, genetically loss may not typically affect both coverages, exposure to
modified foods, changes in weather patterns, and so forth. inflation in loss costs in future years is far less in property,
reinsurance costs tend to have different trends, and so
forth.
The actual situation is more subtle, however, for the more
extreme scenarios. A large factory explosion may lead to
losses to policies that protect workers and to liability if
neighboring buildings are damaged. Potential for a D&O
exposure also exists if the explosion was found to be the
result of management negligence. Similarly, one would
expect a higher degree of correlation between D&O
exposure, surety, financial guarantees and the investment
portfolio under stress scenarios.
Operational risk might be seen as more strongly correlated
with property exposures due to the complications with
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Life Insurance Today June 2015 13
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