Liability Risk Modeling Tool Launched by Lloyd’s and AIR’s Arium

March 14, 2017

Lloyd’s and modeling company Arium have launched a tool designed to enable insurers and reinsurers to model liability exposure probabilistically across their entire portfolios, Lloyd’s announced.

“The new approach categorizes casualty events based on a company’s business activities – its products and services, operations and infrastructure – and maps the economic relationships that reflect the journey of products and services through the economy,” said Lloyd’s in a statement.

The tool’s methodology is detailed in a report, titled “Stochastic modelling of liability accumulation risk.”

The methodology creates liability “storm tracks,” which provide a new, structured way of analyzing casualty events, regardless of risk classification, explained Lloyd’s.

Re/insurers will be able model liability risk in more detail than has been previously possible, in a way that is similar to catastrophe modeling, the statement said.

Lloyd’s said the methodology is the culmination of a three-year project between Lloyd’s and Arium to improve insurers’ understanding of liability risk exposure.

“This is a tremendously exciting development. It is in everybody’s interest to classify liability risks as accurately as possible, and this methodology represents a real step forward for the industry,” said Jon Hancock, Lloyd’s Performance Management director.

“Of course, for it to work effectively it is dependent on high-quality industry classification data, and I would encourage all brokers and other stakeholders to help with the collection of such data,” added Hancock.

“I am delighted that Lloyd’s has helped to incubate Arium from concept stage to a platform supporting portfolio management as well as deterministic and stochastic modeling of liability exposures,” according to Trevor Maynard, Lloyd’s head of Innovation. “It is very positive that AIR Worldwide has purchased Arium to further commercialize this tool.”

Robin Wilkinson, CEO of London-based Arium and managing director of AIR Casualty Analytics, said: “This framework can facilitate the further understanding of liability accumulations, through combining expert knowledge with data-driven analytics.”

In a separate statement, Willis Re said it was one of several corporations that collaborated with Lloyd’s in the development of the stochastic modeling report.

Neil Bodoff, executive vice president, Willis Re, commented: “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-modeled view of risk.”

He welcomed Arium’s new offering in the casualty catastrophe model space, alongside Willis Re’s “existing open-format eNTAIL casualty catastrophe model.”

The full stochastic modeling report can be viewed on Lloyd’s website.


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