AM Best Catastrophe Flashcards
AM Best discusses 3 items that are the keys of a strong CAT management. Provide those 3 items
1 - Data Quality
2 - Monitoring exposures
3 - Controls
Briefly discuss Data Quality as a key of a strong CAT management according to AM Best
- Senior management’s commitment
- Proper coding of loss exposures
- Auditing of exposure coding
- Most current insurance-to-value analysis
Provide 2 causes contributing to the increased in frequency and severity in meteorological event
1 - Population growth
2 - Global warming
Briefly discuss Monitoring Exposures as a key of a strong CAT management according to AM Best
- One or more CAT models are used
- Aggregate loss exposure are monitored
- Monitoring of CAT exposure frequently and consistently
- Including stress test
Briefly discuss Controls as a key of a strong catastrophe management according to AM Best
- CAT management is integrated into the UW process
- Specific aggregate limits are established using a reasonable and defensible basis
- Reinsurance program is based on all available tools to ensure appropriate protection
- Implements safeguards to prevent agents to discoding business (have a better classification)
Provide examples of required items to be included in CAT modeling ? If those items are not included in the Probable Maximum Loss (PML) estimate, what will AM Best do?
1 - Storm surge
2 - LAE
3 - Additional living expenses
4- Demand Surge (increase in cost of repair after a large-scale disaster)
If not included, AM BEST will increase the expected loss estimate by a conservative margin for inclusion in the BCAR
Discuss 2 abilities on which CAT risk management is evaluated which will provide the greatest amount of flexibility within AM Best Stress Test
1 - Ability of avoiding material loss of capital
2 - Ability to respond to a significant capital deterioration after an event
Stress-tested BCAR score can fall to a maximum of 30 points. Provide 5 key factors on which tolerance is based
1 - Financial flexibility 2 - Historical volatility 3 - Exposures to multiple events in a season 4 - CAT exposure to surplus 5 - CAT risk management capabilities
Discuss the baseline treatment of CAT in BCAR
Reduce surplus by the larger of: a 1-in-100-year hurricane/windstorm PML, a 1-in-250-year earthquake PML, a recent actual large loss
Desribe the BCAR methodology for a natural CAT stress test
1 - Risk Adj Surplus = Surplus - NAT PML E1
2 - Adj RR = RR + 0.4(Gross L&LAE E1 - Net L&LAE E1) = RR + 0.4 Ceded L&LAE E1
3 - Adj Reserves = Reserves + 0.4 NPT L&LAE E1
4- Surplus =Risk Adj Surplus - NAT PML E2
a. When hurricanes are major risk, PML is same for 2nd event
b. When earthquakes are main exposure, 2nd event reduced to 1 in 100 year event