A GlobeRisk Perspective on Insurance Risk, Underwriting and Actuarial Services
Underwriting takes two forms, that on business acceptance and that on claims management. It is more important in Non Life insurance rather than life, but it is still present. In some specialist life businesses, for example, impaired life pensions annuity business it remains very important.
In our view the key success factor required to achieve effective underwriting is understanding subsequent performance (of both accepted and rejected business) in comparison to the analysis and other actions undertaken by the Underwriting teams
In our view (Technical) Insurance risk management has many similarities to credit risk management and in designing a good environment many lessons can be learned from banking experience. In response to the increase in regulatory interest in recent years insurance firms have made many improvements to their Insurance risk infrastructure. Notwithstanding, there is still some way to go to achieve similar control levels, still further to enable Insurance Risk management to add real commercial value. In some ways this is counterintuitive since for (at least) non life firms, risk management is much more critical to performance than is the case for banks.
Solvency2 will be a big driver with proportionately lower capital requirements attaching to firms with better:
- Insurance Risk rating models
- Insurance Risk Management frameworks and Infrastructure
For non life firms Insurance risk rating models are the key - improved risk rating models drive directly through to improved risk acceptance and additional profitability. Thus, non life firms have a large profit incentive to move quickly... and a large problem if they lag behind the pack. We see an "arms race" developing in 2008 and 2009 as non life firms start to invest strongly in Solvency2 weaponry.
The delivery vehicle of choice for developing non life risk rating models is Generalised Linear Modelling
GlobeRisk has considerable experience with such models both for banks and insurance firms.
For life firms, the impact of Solvency2 will depend on the extent to which the firms carry technical insurance risk in relation to the other risk areas. Firms that carry significant mortality/morbidity risk will face the same challenges as non life firms. However the majority of life firms are effectively fund managers and here the challenges will mainly lie with ALM and Operational Risk
Traditional Actuarial services are about valuation and reserves. Modern Actuarial services are motivated by "making financial sense of the future" and are, therefore increasingly oriented towards:
- understanding the scope, nature and size of future uncertainty,
- bringing the implications of future uncertainty into reserves estimation and valuation
- advising on frameworks which will do the first two on a continuing basis
In short, Actuarial services will increasingly focus on risk, risk based valuations, risk reserves and risk management. GlobeRisk Actuarial services have this focus now.
GlobeRisk Insurance Risk and Actuarial Services
In 2007, GlobeRisk can offer the following Insurance Risk and Actuarial Services
- Embedded Value review
- Development of insurance risk rating models and product pricing frameworks
- Design and development of insurance ALM and Investment policy
- Design and implementation of capital efficiency programs
- Underwriting review (business acceptance and/or claims)
- Economic Capital
- Insurance Risk 2011 (design of insurance risk management framework)
- Capital Efficiency program
- Review of Office and DFA models
- Review of Risk Rating Models
- Reserves and Valuation Reviews