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Immediately after the occurrence of a major catastrophic event, (re)insurers and specialist investors must assess the potential impact of the event on their portfolios. This is a particularly important process for catastrophe-focused hedge funds, which frequently “carve out” the loss-exposed contracts into side pockets to prevent a premature release of collateral.
Due to the time-sensitive nature of event response, Milliman can function as another “set of eyes” by providing an independent review of potentially affected contracts. Milliman’s actuarial perspective provides a natural complement to the catastrophe model-based approaches common in the industry.
In addition, Milliman can partner with market participants to develop actuarial models for post-event pricing for triggered ILS, helping investors determine whether to sell their potentially impaired holdings. Milliman’s reviews will be based upon industry loss information, individual contract parameters, and deal submission data (when available).
In most reinsurance contracts, losses are likely not to be fully paid and/or reported by the end of the contract period. In these situations, the cedent typically provides periodic bordereaux statements, which offer estimates of the ultimate loss (including incurred but not reported losses).
Often, investors in these contracts are entitled to verify the cedent’s loss workpapers or delegate this activity to an independent actuary, like Milliman. In addition to reviewing the loss bordereaux, Milliman can assist in settling disputes between the parties or to help them reach a commutation at the end of the contract’s extension periods.
Further, Milliman’s independence makes for an ideal partner to serve as the loss reserve verification agent on an indemnity ILS offering or other securitised insurance deal. Milliman’s past experience as a modelling and reserving agent for catastrophe bonds includes serving as the loss reserve verification agent on the only liability catastrophe bond brought to the market to date.
Aaron Koch is a principal and consulting actuary based in Northern Virginia. He joined Milliman in 2011.