Reinsurance

An overview of how catastrophe models are used in the industry.

While roughly 11.0 points of catastrophe losses hit the combined ratios of Bermuda insurers and reinsurers in 2010, they still managed to report nearly 9.0 points of underwriting profit. Favorable loss reserve development from prior years helped soften the blow according to an NU data analysis.

A change to a catastrophe model can influence the level of reinsurance purchased by companies and impinge on the rating process.

Recent revision to a cat model could result in double loss indications for some portfolios. But reinsurers may be able to absorb the model changes without huge increases because they already thought the models were coming in low.

No matter where one stands on the issue of global warming, there are practical reasons for producers to embrace the environmental revolution—not least of which is the chance to grow their books.

In the wake of a magnitude 9.0 earthquake that struck Japan on March 11, with insured-loss estimates reaching as high as $35 billion, analysts and rating agencies fell on either side of the debate about whether the event will cause a turn in the long-running soft-market cycle.

Catastrophe models have become so ingrained in the insurance industry that a model revision can have profound effects on all aspects of the business, especially when loss results for some books of business can double.

By the end of next year, insurers and reinsurers doing business in the European Union will have to demonstrate to regulators there that they have sufficient…