Chapter 7 - D Flashcards
What is the primary purpose of loss and exposure modelling for insurers?
To assist in predicting future losses and to calculate the amount of reinsurance needed.
What does exposure modelling analyze?
How different risks combine to create a concentration of risk in one area.
What is the starting point for an insurer to understand its exposures?
Detailed data capture, down to postcode or zip code level.
What is probable maximum loss (PML)?
A calculation to estimate the realistic likely maximum loss, rather than the total of all sums insured.
Why is PML important?
It is crucial for determining how much reinsurance should be purchased.
What type of scenarios does Lloyd’s provide for loss modelling?
Realistic Disaster Scenarios (RDSs).
List three general scenarios that managing agents must consider.
- Two consecutive Atlantic seaboard windstorms
- Florida windstorms
- Gulf of Mexico windstorm
What must managing agents do for each RDS?
Identify exposed risks, assess reinsurance coverage, and calculate gross and net financial exposure.
What is the New Madrid fault line known for?
It has the potential to impact seven states in the USA during an earthquake.
Which states could be affected by an earthquake along the New Madrid fault line?
- Illinois
- Indiana
- Missouri
- Arkansas
- Kentucky
- Tennessee
- Mississippi
What types of scenarios must syndicates report on?
Two additional scenarios of their own choice with significant financial impact.
What is the purpose of catastrophe modelling?
To calculate likely financial losses in predetermined catastrophe situations.
What additional impact does catastrophe modelling consider?
The non-financial impact, such as increased claims volumes.
What do modellers consider when determining reinsurance levels?
The frequency and severity of particular types of events.
True or False: Loss and exposure modelling is only important for the Lloyd’s Market.
False.
What are some types of risks that may require additional scenario analysis beyond the compulsory ones?
- Marine
- Aviation
- Space
- Energy
- Liability
- Political risks
Fill in the blank: The analysis of RDS scenarios helps insurers calculate the _______ exposure.
gross financial
What must insurers be prepared for if a catastrophe occurs?
A significant increase in claims volumes.
What role do skilled personnel play in the aftermath of a catastrophe for insurers?
They are needed to handle the increased claims efficiently.
