Oortfolio: Understanding Scenarios

Let’s move to considering how you can assess your portfolios’ exposure to our RDS and XDS scenarios and use these scenarios for monitoring purposes. Praedicat’s Oortfolio® software product allows (re)insurers to simulate realistic and extreme disaster scenarios based on existing or potential portfolios. Our solution has a growing library of 69 scenarios, with new scenarios being developed and added on a regular basis, that produce large economy wide mass litigation. These simulations provide immediate results that would otherwise require several months for multiple people to develop and run a small number of scenarios.

To view your portfolios’ scenarios exposure, follow these steps:

 

Looking at the economy wide loss estimates for Praedicat’s 69 scenarios and focusing on extreme disaster scenarios can help you screen for risks that were not previously on your radar but that you determine warrant monitoring based on how they rank out of all 69 of our scenarios based on economy wide losses. One such example might be silver nanoparticles. which is part of the class of nanomaterials that has been a focus of concern over the past several years due their broad commercial and industrial footprint.

 

The silver nanoparticles / liver injury XDS ranks 17th with $299 million in economy wide losses. Conventional silver has long been used as a broad spectrum biocide to control bacteria, fungi, and algae. Its nanoscale form is more potent and is incorporated into a host of consumer products as a deodorizer. Silver nanoparticles’ science risk is developing rapidly, although the economy wide probabilistic losses attributed to it are still relatively low. Research shows that nano-Ag particles primarily accumulate in the liver. Scientists are therefore currently exploring whether the presence of nano-Ag in the liver is connected with liver disease. However, research has yet to establish this link. Praedicat's analytics suggest that science has virtually no chance of establishing that nano-Ag causes liver disease in the next seven years. But given its broad commercial and industrial footprint, liability for nano-Ag-induced liver disease would be massive.

To investigate the potential impact of litigation under this scenario, we hypothesize that somehow, scientific consensus changes dramatically over the next seven years and finds strong epidemiological evidence that nano-Ag causes liver disease and harmed individuals can specifically identify nano-Ag as the cause of their injury. Although the silver nanoparticles / liver disease scenario is an Extreme Disaster Scenario, with the science risk not yet sufficiently developed to support litigation and the outcome is outside of our event set,it is nonetheless useful to see how your portfolio might be exposed to this rapidly evolving risk.

Let’s look at your portfolio’s potential exposure to silver nanoparticles.

 

 

For this portfolio, the silver nanoparticle ranks 30th in terms of exposure out of the full library of 69 scenarios. The silver nanoparticles XDS link will take you to a page with a brief narrative describing how the scenario will unfold, portfolio limits exposed to this scenario, and portfolio losses arising from this scenario, broken down into indemnity and defense. To the right, you will see a listing of industries identified by NAICS code and companies in the portfolio most exposed to this scenario, with their respective limits exposed and total losses attributable to the company or industry segment. You can also click on the Export button to generate an excel file with the detailed underlying data for this scenario. 

 

 

Praedicat often uses scenarios as a sandbox to explore new frontiers in latent liability risk development such as fourth party litigation. We also often use scenarios to understand how liability risk might develop when complex political and societal factors are at play. This was the case with opioid litigation, where we have not developed a full probabilistic loss model around opioids but rather developed sixteen extreme disaster scenarios that revolve around the potential for four different theories of liability (Failure to Monitor, Fraudulent Marketing, Fraudulent Marketing & Failure to Monitor, Public Nuisance) to prevail and therefore for different segments of the stream of commerce to be affected.
Let’s see how this sample portfolio is exposed to the sixteen opioids scenarios.

 

 

 

 

In our Fraudulent Marketing, Private and Public Damages scenario, these are some of the companies in the portfolio that are most exposed.

 

Building a Framework for Accumulation Management Using Scenarios
Praedicat tools and analytics can be used to develop a systematic approach to managing accumulations by providing a science-based means of monitoring emerging risks and identifying the best scenarios to stress test your portfolio. As you have seen, our tools can enhance your approach to selecting and running scenarios that will help identify previously unrecognized aggregations. Just as you would with managing property cat exposures, you can select and run 2-6 scenarios per quarter to address latent liability risk . This will provide insight into:

You are thus better positioned to establish boundaries on your risk appetite and communicate this guidance to your underwriting community, as well as evidencing a more sophisticated understanding of your accumulations to rating agencies and regulators.