ERM for Reinsurers

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15 September 08
ERM for Reinsurers Casualty Actuarial
Society Limited Attendance Seminar
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Panelists

• Mark Puccia
• Managing Director, Standard Poors
• Bruce Fell, FCAS MAAA, CFA
• Principal, Towers Perrin
• Steve White, FCAS MAAA
• Managing Director, Guy Carpenter
• Tim Aman, FCAS MAAA
• Chief Risk Officer, Montpelier

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Panelists

• Mark Puccia
• Managing Director, Standard Poors
• Bruce Fell, FCAS MAAA, CFA
• Principal, Towers Perrin
• Steve White, FCAS MAAA
• Managing Director, Guy Carpenter
• Tim Aman, FCAS MAAA
• Chief Risk Officer, Montpelier

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Definitions

• Risk Appetite High-level view of how much risk
  management and the board are willing to accept.
• Risks the entity will take
• Risks the entity wont take
• Risk Tolerance statements Acceptable level of
  variation around objectives.
• Narrower in scope
• Quantitative
• Generally multiple statements

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Definitions

• PML
• Probable Maximum Loss
• Frequency
• Ranges from 0 to 100
• MFL
• Maximum Foreseeable Loss
• Tail Event
• MPL
• Maximum Possible Loss
• Aggregate limits

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PMLs

• There exist a range of PMLs for various
  interested parties with various risk appetites
  and time horizons
• 0 at frequent return periods (per second, per
  quarter)
• 100 at remote return periods (per millenium, per
  eon)

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Balancing interests

• Type I error
• Too little protection
• False positive
• Type II error
• Too much protection
• False negative
• Impractical to hold capital and/or purchase
  reinsurance up to policy limits
• The market deems some level of risk acceptable

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Data quality

• Model output is only as good as the data that
  goes in
• Critical in making informed risk management
  decisions
• Data quality is within the control of the insurer
• Source of uncertainty?
• Source of confidence?
• Should be factored into Risk Appetite

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Views of risk

• Most people want certainty, not sufficiently low
  probabilities
• Regulators want policyholders to be paid
• Shareholders want returns
• Deterministic thinking pervades society
• Statistics is a relatively young science

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Please visit our websites for more information on
our company, products and team members www.montpe
lierre.bm www.mre.bm www.montpelier5151.co.uk www.
montpelierus.com www.montpeliereuropa.ch
Montpelier House, 94 Pitts Bay Road, Pembroke,
Bermuda PO Box HM 2079, Hamilton, Bermuda,
HMHX Tel [phone] Fax (441)
296-5551 Email info_at_montpelierre.bm Web
www.montpelierre.bm