BMA report highlights industry’s use of catastrophe modelling
The percentage of insurers in Bermuda purchasing little or no external catastrophe reinsurance decreased to zero per cent of respondents in 2023, the Bermuda Monetary Authority reported.
The island’s financial services regulator said that compared with 4.2 per cent of respondents in 2022.
The BMA said the vast majority of insurers model catastrophe risk by considering external reinsurance explicitly, either for some treaties or separately.
In 2023, about 95.7 per cent of respondents explicitly calculated some or all external reinsurance treaties in their catastrophe modelling.
The information is contained in the BMA’s 20-page publication, Catastrophe Risk Modelling 2023 Report.
The report highlights the catastrophe modelling practices of Bermuda insurers and reinsurers, which rely substantially on models to project losses and assist them in risk and solvency calculations.
In its prudential supervisory work, the BMA said it tracks trends in the usage of models to form views and supervisory responses in managing catastrophe risk.
The BMA said AIR Worldwide and Risk Management Solutions are the most frequently used modelling software tools, used together or stand-alone, with AIR being the leading model for legal entities and groups.
In-house modelling was utilised by 41.7 per cent of legal entities and 31.6 per cent of groups in 2023.
Additionally, 12.8 per cent of legal entities and 5.9 per cent of groups reported using more than one model in their accumulations.
Legal entities mostly use their models every quarter, with 54.2 per cent of insurers doing so, while 42.1 per cent of groups accumulate data on a quarterly basis.
The BMA said that the 2023 Capital Solvency Return filing showed that 88 per cent of the catastrophe risk exposure underwritten in Bermuda is modellable using vendor catastrophe models and that 99.15 per cent of catastrophe risks were modelled.
The regulator also surveyed groups on the use of internal models. As of 2023, 68.4 per cent of groups do not use internally developed models.
On the group level, models are used for their outward reinsurance treaties. In 2023, all groups had external reinsurance treaties to mitigate catastrophe exposure.
The percentage of groups modelling reinsurance protections explicitly for all treaties within the catastrophe model was 42.1 per cent.
• For the full report, see Related Media
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