Lloyd’s report on cat risk liability models marks 'valuable milestone'

A new report by Lloyd’s on catastrophic liability risks modelling marks a valuable milestone in the development of solutions to model and quantify casualty downside risk, Willis Re has claimed.

The report, Stochastic modelling of liability accumulation risk,  launched by Lloyd's and Arium, examines how exposure to casualty risk can be visualized with the use of historical data and stochastic tools to help understand insurance portfolios’ exposure to historic and emerging casualty catastrophes.

Historic events are used to understand the business relationships that underlie casualty catastrophes and map them onto re/insurer's own portfolio, creating some of the building blocks for quantifying potential casualty catastrophe exposure.

"The objective of quantifying liability risk is consistent with the goals of our clients and industry stakeholders, as current market practice for evaluating risk can be arcane and result in a sub-optimal outcome," said Andrew Newman, president, global head of casualty and CEO alternative strategies at Willis Re, who collaborated with the panel in the development of the report.

"Willis Re and Lloyd’s are strategically aligned in seeking to further improve methods of risk evaluation and we are pleased to be sharing our data and proprietary intellectual property to help achieve our common goal. A better understanding of liability risk will assist Willis Re, our clients, the industry as a whole and ultimately the consumer."

Neil Bodoff, executive vice president at Willis Re, added: "We view this stage as another recognition of the importance of measuring casualty catastrophe risk through exposure based models. It is challenging to model casualty risk, given its complexity and evolving dynamics; achieving industry consensus has some way to go.

"Given these complexities we recommend clients take a multi-faceted, multi-modelled view of risk; we welcome Arium’s new offering in the casualty catastrophe model space alongside our existing open-format eNTAIL casualty catastrophe model."

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