You have done your rate analysis. Your predictive models are impeccable at identifying risk characteristics and accounting for them appropriately in your pricing model. You have included the correct provision for all losses and expenses, including the cost of capital. You know what the loss size and expected frequency distributions are for your book. In short you have dotted all your I's and crossed all your T's. Now it is time to roll all this into your company's assessment of the risks it faces as captured by its economic capital model. Are you ready for that step?
This panel will look at underwriting risk—the risk, including the cost of capital, on a book of policies will turn out different from what was anticipated in the price charged. Some of that difference is due simply to random fluctuation and is likely anticipated in many pricing analyses. But there are influences in addition to simple random chance. Such influences might not be readily apparent and they might not be appropriately captured in the analytic models. Our panel will look at both the quantitative and qualitative issues that can arise when considering underwriting risk.