AIR and RMS dominate modelling among Bermuda Reinsurers

16-12-2021

AIR and RMS dominate modelling among Bermuda Reinsurers

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AIR Worldwide and Risk Management Solutions continue to dominate the risk modelling market among Bermuda re/insurers, according to the Bermuda Monetary Authority, which finds modelling practices “in a steady state”. 

“Bermuda insurers continue to develop in-house models in the event that external vendor models do not (sufficiently) cover specific risks/perils,” the regulator’s annual review of catastrophic risk modelling adds. 

“Re/insurers rely substantially on models to project losses and assist them in capital and solvency calculations,” the report’s executive summary records. In 2020, it noted, Bermuda re/insurer’s average loading factor in the accumulation process had slightly increased to 6.6%, compared to 6.1% in 2019. For groups, the average loading factor stood at 4.6% in 2020, compared to 5.5% in 2019.

“In 2020, fewer legal entities had assumed the Atlantic Multi-decadal Oscillation (AMO) long-term view of exposure rather than the near-term view,” it adds. This was the same for groups. 

While AIR and RMS were the most frequently used modelling software, the latter was the leading model for groups. In-house modelling was utilised by 41.3% of legal entities and 31.6% of groups in 2020. More than a quarter of both legal entities (28.6%) and groups (25.1%) reported using more than one model in their accumulation process. 

“There has been considerable change in model usage; AIR only-use is dominant for legal entities, while RMS only-use is predominant for groups,” the report finds. Models were used quarterly, most commonly at a little over 40% for both.

“[T]he Authority observed variations in modelling practices between groups and legal entities, which are expected given that legal entities will tend to assume more niche risks than groups with specialised risk management needs,” it noted.

The report was produced using aggregated and non-aggregated data from the Bermuda Capital and Solvency Return (CSR) filings of Class 3B, Class 4 legal entities and insurance groups for the period ending 31 December 2020. It is the authority’s second stand-alone annual review on catastrophe modelling, which used to be combined with its stress testing report.

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