insurance matters

Insurance matters focusing on Solvency II and capital modelling

Welcome to the fifth edition of ‘insurance matters’. This edition focuses on Solvency II and capital modelling, and features articles from some of our associates taking part in workshops or working parties at GIRO.

The proposed Solvency II regulation will have an impact on all areas of (re)insurance companies’ business and practices.

Ryan Warren looks at current issues affecting the results of (re)insurance companies; Ewa Machlarz gives an update on the Solvency II consultation papers from CEIOPS; Hannes Janse Van Rensburg looks at systemic risk drivers and Rob Collinson and Paul Hewett look at operational risks and risk aggregating techniques.

Roger Boulton from our Investment practice takes a look at asset modelling and governance whilst Graham Fulcher and Jenny Wong explore the new responsibilities for the actuarial function under Solvency II.

We hope you enjoy reading this edition of ‘insurance matters’ and would welcome your comments on issues you would like us to address in future issues.

In this issue:

• Actuarial opinions on underwriting and reinsurance strategy (PDF 483KB) 
  Jenny Wong and Graham Fulcher discuss some changes and challenges ahead for actuaries.
• The challenge of operational risk (PDF 637KB) 
  Rob Collinson and Paul Hewett discuss some challenges in the estimation of the contribution of operational risk to the wider capital requirements of an insurance undertaking.
• Breakthrough at last? (PDF 1.1MB) 
  Roger Boulton explains how Solvency II brings a new perspective on investment risk and, crucially, on governance.
• Risk aggregation (PDF 739KB) 
  Rob Collinson and Paul Hewett consider the benefi ts and challenges of using the technique to shape risk mitigation and decision-making policy.
• Systematic risk drivers and insurance scenario generators (PDF 609KB) 
  Hannes Janse Van Rensburg describes the next generation of capital model development.
• Solvency II – consultation papers provide further guidance (PDF 489KB) 
  Ewa Machlarz examines some of the issues raised in these consultation papers and how they may affect the European insurance industry.

Autumn 2009

• GIRO 2009 Edinburgh (PDF 541KB) 
  Kirsty Gray takes a look at some interesting facts and fi gures about Edinburgh.
• Current issues in the UK insurance market (PDF 734KB) 
  Ryan Warren briefl y explores the position and recent developments surrounding the profi tability of the UK non-life insurance market.
• The ‘winner’s curse’ in insurance (PDF 781KB) 
  Graham Fulcher, Yves Colomb and Michael Garner discuss the concept of the ‘winner’s curse’ – whereby in an auction with bids based on imperfect information, the winners will tend to overpay.’
• Effects of the global downturn (PDF 694KB) 
  Graham Fulcher and Naomi Couchman concentrate on some of the broader and medium-term possible effects on insurance business.
• Lloyd’s and London Market benchmark pricing (PDF 916KB) 
  Hannes Janse Van Rensburg and Sanjiv Chandaria explain how benchmarking can work for you.
• Data talk (PDF 844KB) 
  Your desktop PC has useful, data-hungry applications. Richard Bland studies the tools which help them talk to each other.
• Getting to grips with Part VII transfers (PDF 591KB) 
  In this article, Kate Angell and Richard Bulmer explore how Part VII transfers can be used as an effective tool for the management and restructuring of insurance business.

Insurance matters focusing on personal lines pricing

• The Equality Bill and pricing (PDF 185KB)
  The proposed Equality Bill may potentially impact how insurers price insurance. James Tanser reviews the current proposals and considers how insurance companies could adapt.
• The ‘winner’s curse’ and its impact on aggregators (PDF 411KB)
  Michael Garner examines how this phenomenon displays itself when insurers sell business via aggregator websites, and what can be done to avoid falling victim to the curse.
• Houses built on sand – are special offers providing a solid foundation for profitable growth? (PDF 769KB)
  Richard Bretton considers some of the wider implications of the current offers.
• Motor market profitability (PDF 373KB)
  Ryan Warren discusses a recent investigation by Watson Wyatt into the UK motor market, and reveals a bleak future for shareholders.
• When GLMs go wrong – or how to tell when your models are not working (PDF 766KB)
  Generalised Linear Models are at the heart of successful personal lines pricing. Richard Bland considers the risk that these powerful tools might misbehave.

Summer 2009

• Preparing for the challenges of Solvency II (PDF 72KB) 
  Graham Fulcher offers some selected highlights from a recent Watson Wyatt survey.
• Taking reserving into the 21st century (PDF 140KB) 
  Sanjiv Chandaria and Graham Fulcher discuss developments in reserving practices
• The impact of aggregators on personal lines pricing (PDF 100KB) 
  Michael Garner looks at the rise of aggregators in recent years and how insurers should be adjusting their pricing processes to allow for this new environment.
• Commercial lines pricing - developing a framework to maximise value (PDF 107KB) 
  Hannes Janse Van Rensburg and Ryan Warren explain how pricing actuaries can become more influential and add competitive advantage to commercial lines insurers.
• Investment strategy for insurers: learning lessons from 2008? (PDF 140KB) 
  Roger Boulton, a senior consultant in the Investment practice, gives some thoughts on how to face the investment challenges of 2009.
• Advances in flood modelling (PDF 176KB) 
  Flood risk is an issue of increasing importance to all European insurers. In this article, Richard Bretton and James Tanser consider the latest developments.
• Current issues in UK asbestos (PDF 192KB) 
  Sarah MacDonnell and Richard Bulmer discuss the latest developments in mesothelioma claims.

Spring 2009

• Internal models - implementing, embedding and adding value to your business (PDF 290KB) 
  Kirsty Gray discusses the European Non-Life Forum which was held in Cascais, Lisbon in October 2008.
• Association of Run-Off Companies: capital modelling in the legacy market (PDF 42KB) 
  Rob Collinson presents headline results from a recent Watson Wyatt survey
• The actuary of the future - introducing the Actuarial Function (PDF 340KB) 
  Dean Swallow and Sanjiv Chandaria explore the challenges of this new role.
• Extracting value from your business - capital models in the legacy sector (PDF 220KB) 
  Paul Hewett and Rob Collinson explain how to tackle the challenges facing run-off companies.
• The power of incentives (PDF 210KB) 
  Kate Angell and Geoffrey Strickland discuss the challenges with insurance companies' incentive arrangements.
• Creditor insurance - the big shake up (PDF 330KB) 
  Naomi Couchman and Kate Angell advise how companies can gain competitive advantage.

Autumn 2008

• Dangers around Sorrento (PDF 80KB) 
  Kirsty Gray takes a look at the risks of living near an active volcano.
• Lloyd’s and the London Market: capital management and pricing trends (PDF 60KB) 
  Sanjiv Chandaria presents headline results from a recent Watson Wyatt survey
• Creating value from capital modelling (PDF 380KB) 
  Rob Collinson explains how companies can create value from capital models.
• M&A trends (PDF 120KB) 
  Ewa Machlarz reflects on the recent increase in non-life M&A activity across Central and Eastern Europe.
• Solvency II and QIS 4 – time to prepare (PDF 350KB) 
  Richard Bulmer and Dean Swallow look at some of the issues and challenges facing insurers in the run-up to implementation of Solvency II.
• Lessons from the sub-prime crisis (PDF 150KB) 
  Graham Fulcher reflects on lessons arising from the sub-prime banking crisis which could provide valuable insight for London market insurers.
• Price optimisation (PDF 220KB) 
  Price optimisation is one of the hottest topics in personal lines pricing. In this article, previously published in The Actuary, James Tanser looks at the benefits and challenges.
• Best practice in pricing (PDF 160KB) 
  Ryan Warren outlines best practice in the pricing function.