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Industry welcomes Lloyd’s report on modelling of catastrophic liability risks
Written by staff reporter
The 'Stochastic modelling of liability accumulation risk' report published by Lloyd’s and Arium marks a valuable milestone in the development of solutions to model and quantify casualty downside risk, according to Willis Re. The methodology is the culmination of a three-year project between Lloyd’s and Arium to improve insurers’ understanding of liability risk exposure.
Jon Hancock, Lloyd’s Performance Management Director, said: “This is a tremendously exciting development. It is in everybody’s interest to classify liability risks as accurately as possible, and this methodology represents a real step forward for the industry. Of course, for it to work effectively it is dependent on high-quality industry classification data, and I would encourage all brokers and other stakeholders to help with the collection of such data.”
The report, launched by Lloyd’s and Arium this week, examines how exposure to casualty risk can be visualised with the use of historical data and stochastic tools to help understand insurance portfolios’ exposure to historic and emerging casualty catastrophes. Historic events are used to understand the business relationships that underlie casualty catastrophes and map them onto an insurer's or a reinsurer's own portfolio, creating some of the building blocks for quantifying potential casualty catastrophe exposure.
Andrew Newman, president, global head of casualty & CEO Alternative Strategies, Willis Re, who collaborated with the panel in the development of the report, said: “The objective of quantifying liability risk is consistent with the goals of our clients and industry stakeholders, as current market practice for evaluating risk can be arcane and result in a sub-optimal outcome. Willis Re and Lloyd’s are strategically aligned in seeking to further improve methods of risk evaluation and we are pleased to be sharing our data and proprietary intellectual property to help achieve our common goal. A better understanding of liability risk will assist Willis Re, our clients, the industry as a whole and ultimately the consumer.”
Neil Bodoff, executive vice-president, Willis Re added: “We view this stage as another recognition of the importance of measuring casualty catastrophe risk through exposure based models. It is challenging to model casualty risk, given its complexity and evolving dynamics; achieving industry consensus has some way to go. Given these complexities we recommend clients take a multi-faceted, multi-modelled view of risk; we welcome Arium’s new offering in the casualty catastrophe model space alongside our existing open-format eNTAIL casualty catastrophe model.”