OSFI.Eqk Flashcards
what is a broad 3 point plan for managing earthquake exposure?
MML
- Measure
- Monitor
- Limit earthquake exposure
define PML (Probable Maximum Loss)
dollar value of loss a major earthquake is unlikely to exceed
define gross PML and net PML
Gross: PML amount after deductible but before CAT and other reinsurance protections
Net: PML amount after deductible and after CAT and other reinsurance protections
identify the 5 key principles of managing earthquake exposure
MR.PDF
- Models
- Risk management
- PML
- Data management
- Financial resources & contingency plans
describe the key principle “Risk Management” for earthquake exposure
earthquake exposure risk management policies are overseen by senior management
describe the key principle “Data Management” for earthquake exposure
- data required is more than for traditional ratemaking
- must address data (ILV 爱LV ) integrity, limitations and verification
describe the key principle “Modeling” for earthquake exposure
must understand assumptions, methods and limitations of earthquake models
describe the key principle “PML” for earthquake exposure
include considerations for
- data quality
- non modeled exposure
- model uncertainty
- multi region exposure
describe the key principle “Financial resources and contingency plan” for earthquake exposure
- financial resources: quantification of how financial resources cover PML
- contingency plan: to ensure continued effective business operations after disaster
identify 2 items that should be documented for earthquake risk management
(2 of the following)
- risk appetite and risk tolerance of insurer
- data management framework
- model assumptions, methods, limitations
- PML calculation
- contingency plans supporting the risk
describe and explain the best practices of earthquake modeling
DAQKD - UP
- Document: use of model within risk management program
- Alternatives: understand why a particular model is used vs. alternatives
- Qualified: ensure qualified staff run in-house models regularly
- Knowledge: must have knowledge about AML (Assumption, Methods, Limitations)
- Data: provide evidence to show granularity and quality of data is appropriate
- Uncertainty: understand how uncertainty affects capital adequacy and reinsurance requirements
- PML: if more than 1 model used and they produce different PMLs, be able to explain the differences & any subsequent model adjustments
identify uses of earthquake models aside from PML calculation
- make UW decisions
- monitor exposure accumulations
what are sound practices for earthquake model version?
- use more than 1 model
- ensure timely updates of material changes to model (within 1 year of change)
- understand AML of vendor software for PML calculation
- if in house PML model is used, should compare results to alternate models
what are sound practices for earthquake model validation?
- compare modelled losses with actual losses
- compare tail losses with market price for reinsurance coverage
- use global data to supplement limited Canadian data
PML: how might management adjust for low data quality in earthquake PML estimate?
may add a margin of safety to the PML estimate
considerations regarding PML estimates
(e,NMD)
- data quality
- non-modelled exposures
- model uncertainty
- exposures to multiple regions
identify non-modelled exposures when calculating PML
(E,GIC)
- exposure growth between date of data and relevant exposure period
- guaranteed replacement cost
- ITV adequacy
- contingent business interruption
these may be small individually, but accumulation may be significant
identify 2 examples of model uncertainty
- uncertainty associated with conversion from location specific ground motion to actual damage levels
- model assumptions are being continuously updated and refined
how might management adjust for model uncertainty in earthquake PML estimate?
add a margin of safety to the PML estimate
regarding multi-region exposure, identify disadvantages of using maximum of (BC, QC) exposures
- understates risk of insurers with exposure in both regions
- ignores earthquake elsewhere, which could be material
how should PMLs be reported for Canadian versus foreign insurers with exposure outside Canada?
BoD, senior management would report PMLs to OSFI as follows:
- Canadian insurers report PMLs based on worldwide exposure
- foreign insurers report PMLs based on Canada wide exposure
identify financial resources for covering PML for earthquake exposure
CREC
-capital & surplus (max 10% of capital & surplus)
- reinsurance
- earthquake reserves (calculated as part of MCT)
- capital market financing (financing transaction to hedge their risk for CAT events)
identify restrictive condition on earthquake exposure financial resources for reinsurance coverage
when including non-CAT reinsurance must consider “per event” limits and other events that may exhaust coverage
identify restrictive condition on earthquake exposure financial resources for capital & surplus
limited to a maximum of 10% of capital & surplus
identify restrictive condition on earthquake exposure financial resources for EPR
must not exceed countrywide PML500
S2014Q16
S2017Q17
what are OSFI’s earthquake exposure reporting requirements?
- file earthquake exposure data form annually
- if no material exposure, then submit a letter stating so
what are OSFI’s earthquake exposure supervisory requirements?
if an insurer has material earthquake exposure,
- submit earthquake risk management policies
- submit FCT report that includes earthquake exposure scenario
what is the difference between OSFI’s earthquake exposure (reporting & supervisory) requirements?
- for reporting purposes: jus submit the standard earthquake exposure data form
- for supervisory purposes: must submit comprehensive risk management policies
what are OSFI’s supervisory options when an insurer’s earthquake exposure risk management principles are not being followed?
OSFI may adjust capital or asset requirements or TSR (Target Solvency Ratio)
what are the duties of senior management regarding earthquake exposure risk management?
- implement risk management plan & internal control
- discretion 审慎 to increase PML from model (due to low data quality of model uncertainty)
- a senior manager reports to all senior management about compliance and the PML
what is included in a senior officer’s regular reports to senior management regarding earthquake exposure?
- state compliance with risk management policies
- explain calculation of PML with details of supporting financial resources
what are the duties of the BoD regarding earthquake exposure risk management?
- oversight of risk management plan
- ensure adequacy of internal controls
ways to improve risk estimation and CAT risk management
- technological investment
- audit data
- ensure adequate financial resources & contingency plans
- measure/monitor/limit earthquake exposures
