Praedicat launches new casualty risk model

Liability risk analytics company Praedicat has launched Nekomodel X, the next generation of its probabilistic casualty catastrophe model. It is designed to expand on the underwriting applications of previous model releases and to facilitate exposure-based pricing and reserving.

The firms says that new methods for pricing and reserving incorporating data on exposure to emerging risks can drive sustainably profitable business for general liability insurance - a $90 billion casualty insurance line which is facing increased volatility and aggregation risk due to the rise of social inflation.

Dr David Loughran, senior VP of Product & chief economist at Praedicat, said: “Nekomodel X’s mass litigation model better reflects the behaviour of a plaintiffs’ bar with unprecedented access to capital. We have captured the impact of the current environment where plaintiffs’ attorneys have sufficient capital to experiment with new theories of causality and can afford sustained litigation based on those theories. No underwriter should accept a risk exposed to US tort law without first checking its exposure to the more than 240 distinct casualty risks covered by Nekomodel X.”

The new model employs natural language processing and machine learning to connect 128,000 companies, their products, and their business activities to the global, peer-reviewed scientific literature that investigates whether these products and activities have the potential to cause bodily injury or environmental harm. Granular exposure data coupled with a probabilistic forecast model quantifies the frequency and severity of casualty-relevant litigation for every company.

Praedicat points out that, historically, general liability insurance has seen periods of sustained losses and reserve restatements driven by mass litigation episodes like asbestos, which ultimately cost the industry over US$100bn. Reserving and pricing based only on historical claims data cannot capture emerging risks like asbestos, and therefore can cause a spiral of reserve restatements and insolvency. Nekomodel X aims to provide the missing exposure data to combine with historical claims data that ultimately provides the complete picture for pricing and reserving.

Robert Reville, CEO at Praedicat, said: “Nekomodel X is the culmination of ten years’ work. It is the foundation of our emerging risk framework that tracks and quantifies latent risks across their lifecycle. It supports the transformation of casualty underwriting into a discipline supported not only by instinct, but also informed by scientific insight and complex data analysis. Most importantly, it expands the forward-looking capabilities to reserving and pricing."

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