Insurance Risk Study - Seventh edition 2012

Twenty years ago, on August 24, 1992, Hurricane Andrew made landfall in Homestead, Florida, and fundamentally changed the insurance industry forever. It precipitated the analytic era of insurance risk management, with its focus on computer simulation models and statistical quantification of risk. Results of the last twenty years show the great strengths of the new era, but also some weaknesses.

Time and time again we see perils with robust, widely accepted models being more effectively managed through insurance, reinsurance and other mechanisms. There is now broad agreement on the need to model and understand as many insured risks as possible. S

The Insurance Risk Study provides a consistent set of global benchmark risk parameters based on empirical data. The Study is designed to put the analysis of liability and non-catastrophic property lines on an equal footing with risks analysed using catastrophe models and to help expand the universe of effectively modeled risk as far as possible.

In this year's Study we maintain our philosophy of complementing catastrophe models. However, motivated by the fragility caused by un-modeled events, we also report on catastrophic risk - but from a purely empirical point of view. A series of Aon Benfield cartogram maps, starting on page 11, illustrate global exposure to wind, earthquake and flood perils. These cartogram maps are based on up to 100 years of historical data. They form the basis for a robust, consistent, and global complement and backup to traditional catastrophe models. Last year's tsunami, Thailand floods and U.S. severe weather outbreaks, which were not modeled or only poorly modeled, illustrate the need for such backup risk management.

Another addition to the Study this year provides expanded coverage of opportunities in the insurance world:

1) Which parts are growing and which are shrinking?

2) Where are the opportunities to write more profitable business?