About

Lead in risk analysis

1.1 Support and Undertake Research

QBE European Operations (QBE EO) makes full use of the latest available scientific data and risk modelling techniques to protect our stakeholders’ and customers’ interests.

Sample Publications reviewed:

Marsh Report, Climate Change: Business Risks & Solutions volume v, issue 2, Apr 06;
European Wind Energy Association (EWEA) Report - Delivering Offshore Wind Power in Europe;
European Wind Energy Technology Platform – Strategic Research Agenda – Market Development Strategy, 2008 – 2030 (July 08);
British Wind Energy Association (BWEA) Report – Wind Energy in the UK: A BWEA State of the Industry Report (Oct 08); and,
Paul J Fox, Dept of Geology & Geophysics, Texas A&M University - Climate Changes: The Secret from the Sea, Nov 08.

Research we undertake internally:

Annual review of QBE’s Probable Maximum Loss (PML) methodology for property wind catastrophe for peak zones to review any major developments or changes in opinion on potential major wind catastrophe losses;
Review exposures to ensure that QBE has limited exposure to common law and Directors and Officers claims should we exclude climate change exposures for customers who do not take prudent steps to prevent the relevant losses. This takes into account current activity of certain US states in suing car manufacturers and the power generation industries (and probable downstream to coal miners and oil companies);
Consider introducing climate change questions into the underwriting processing for at risk industries to ensure that the underwritten companies have a pro-active approach to assessing climate change to ensure they have a defensible position in the event of future litigation; and,
Consideration to offering products to the new carbon trading markets.

QBE EO ensures that we have a consistent approach to climate change in our operations around the world.

Further activities are exhibited through the creation of the Emerging Risks Group. Remitted with the co-ordination of QBE EO’s process for identifying and managing emerging risks, its responsibilities to the Group include:

Consideration and discussion of new and emerging trends;
Formally identify the key emerging risks and their relative priority;
Consideration of potential for new types of claims arising out of emerging risks and their impact on portfolios / QBE EO;
Direct further work required from technical researchers, including identification of improvements to policy terms and conditions where applicable;
Ensure communication on emerging risks throughout QBE EO, including the escalation of any issues to the Risk Management Committees;
Ensure suitable representatives are involved in any technical research as appropriate; and,
Raise awareness of the importance of emerging risks.

Emerging risks are those that are perceived to be potentially significant but which may not be fully understood or allowed for in insurance terms and conditions, pricing, reserving or capital setting. Such risks include but are not limited to:

Climate change;
Nanotechnology;
New technologies in food production;
Modern methods in plant breeding and effects on diversity; and,
Green revolution e.g. recycling and bio-waste processing.

QBE’s Emerging Risk Group (ERG) will better co-ordinate the process for identification and management of emerging risks.

The Financial Services Authority (FSA) and rating agencies consider the processes for identification, review, action and communication in respect of emerging risks as part of their evaluation of insurers’ risk management.

Lloyd’s have strengthened their processes in respect of emerging risks controls. As part of the process a Lloyd's Emerging Risks Working Group has been set-up, which includes a representative from QBE European Operations.

A summary of the status of the emerging risks priorities and actions being taken will be submitted to the Risk Management Committees on a quarterly basis, and relevant underwriting and other forums as appropriate.

1.2 Support more accurate forecasting

In relation to catastrophes, through the specifically designed Realistic Disaster Scenario (RDS) programme, QBE EO analyses the estimated maximum cost of simulated catastrophes. Whilst this is a requirement of both Lloyd’s (for our syndicates) and Group (for the whole of EO); we run the programme twice each year – to check that our reinsurance arrangements are achieving what we intended; and to model a wider range of scenarios.

Using data supplied by the Business Units, on whose help we rely to do this job, we are required to analyse the estimated cost of a series of specified scenarios.

Our comprehensive systems and modelling of realistic disaster scenarios and property aggregate accumulations include assessment of the potential impacts of climate change related risks. The models used are regularly updated to incorporate the latest scientific evidence in relation to emerging climate change scenarios such as population shifts, changing property values, extra costs incurred for goods and services from demand surge and short-term to long term seasonal weather forecasts.

At a group level, QBE applies a rigorous methodology to assessing potential catastrophe claims including the use of realistic disaster scenarios, commercial catastrophe loss models and in-house catastrophe loss assessment tools.

The outcomes of these assessments help to set the level of reinsurance required by QBE and, in conjunction with QBE’s risk appetite and tolerance, determine the amount of risk that is retained by the Group in any one geographic region for a particular peril. An important input into setting the risk tolerance is the planned allowance for large individual risk and catastrophe claims in the business plan. This is the level of claims that QBE can afford to fund in any one year without affecting the planned profit of the Group.

With regards to supporting national and regional forecasting:

QBE continue to participate on the Association of British Insurers (ABI) Property Committee, to:
- Ascertain research and risk data from Environment Agency regarding impact of climate change on flood risks;
- Understand reservoir / dam burst risk and impact from property risks; and,
- Lobby government for increased spend on flood defences and planning policy and guidance in flood prone areas.
QBE engage with the Cambridge Institute in respect of our asset protection product line;
Enlist the services of the British Occupational Health Foundation for advice;
Participate on the Lloyd’s Emerging Risk Group as well as creating one specific to QBE; and
QBE is a signatory to a United Nations Environment Programme (UNEP) statement of environmental commitment.
- Being a signatory, QBE is committed to sustainable development, environmental management and public communication

1.3 Use research to inform pricing, capital and reserves

One of the Operational risks for QBE and the general insurance and reinsurance industry is the potential for increased claims costs due to the impact of climate change scenarios such as those identified by the Intergovernmental Panel on Climate Change. An inherent strength of the QBE Group is a high level of product and geographical diversification which mitigates the potential impacts of extreme weather events in any one part of the world.

This is evidenced by the strength of the Group’s financial results notwithstanding extreme weather related events in recent years. The potential for increased frequency and/or severity in damaging weather related occurrences has and will continue to result in changes to the underwriting and retention of insurance risk.

1.4 Evaluate risks of New Technologies

As mentioned in the above sections, QBE has established an Emerging Risk Group (ERG) in order to better co-ordinate the process for identification and management of emerging risks. This includes review of new technologies e.g.

Nanotechnology;
New technologies in food production;
Technology & pervasive systems;
Modern methods in plant breeding and effects on diversity; and,
Technology & compulsion disorders.

Our review process follows specific phases:

Emerging risks are identified and recorded in matrix;
High 'threat' and 'impact' risks are prioritised for further review, where required;
Information gathering process are instigated using questionnaires to business units or other appropriate methods;
Collate and analyse information, identifying where action is required and move to Phase 5. If no further action - place on hold;
Plan of action put in place by business units, to mitigate potential threat and/or impact;
Business units present mitigation plans to Emerging Risks Group;
Emerging Risk Group review plans identifying issues that require attention by the Chief Underwriting Officer (CUO);
CUO reviews any issues raised, agreeing actions or advising alternative actions; and,
Actions put in place by Business Units and subsequently reviewed by Emerging Risks Group.

1.5 Share Research with Others

Whilst the risk management area believes there are no specific direct threats, the team has highlighted potential opportunities to advise clients on climate issues. To this end, the team will seek to identify areas where they can provide a service in respect of climate change.

QBE has made general comments on climate change submissions as part of a larger industry document via the Washington State Climate Change Risk Survey and participation in National Association of Insurance Commissioners (NAIC) discussions on reporting by insurers on climate change. QBE will be participating in NAIC’s Insurer Climate Risk Disclosure Survey in 2010.

Additionally QBE provided an overview of its risk management activities, including climate change in its annual report for the year ending 31 December 2008.

Finally, QBE also provides details to the Sustainable Asset Management (SAM) Group as part of their sustainability assessment for the Dow Jones Sustainability Index (DJSI).