Put Risk
Under the
Microscope
To better manage risk,
reinsurers are turning to
increasingly sophisticated
technologies and models.
By Daniel Joelson
THE ECONOMIC CRISIS HAS LAID BARE THAT THE RISK profiling and management capabilities of certain insurers are somewhat lacking. This has led some reinsurers to reassess potential partners, which has in turn caused insurers to
scramble for more capital through new avenues, either by searching out
private equity or even by reinsuring internally.
“The financial impact of the market meltdown has really made the
reinsurance market much more difficult to access,” explains Christian
DesRochers, a senior managing director of the life insurance actuarial services practice of SMART Business Advisory and Consulting, a
Devon, Pa.-based consulting firm that helps both reinsurers and insurers to better structure business deals.
Natural disasters such as Hurricane Katrina and Hurricane Ike have
been even more influential than the recent financial crisis in propelling
reinsurers to retool their risk models, notes Chris Klein, global head of
business intelligence and a managing director of Guy Carpenter, a New
York-based reinsurance broker and a part of the Marsh & McLennan
Cos. “But the challenge this time around has been the big damage sustained on the asset side,” he says. “We will probably see increased
development on the asset side of dynamic financial analysis (DFA)
models that are being employed in the industry with respect to determining capital requirements and capital allocations,” says Klein. In particular, DFA technology, which actuaries use to examine issues such as
reserving risk, pricing/underwriting risk and catastrophe modeling,
has drawn significant interest from reinsurers.
