Guy Carpenter develops new way to model cargo accumulation

Guy Carpenter & Company, LLC, a global risk and reinsurance specialist, has formed a specialized project team to identify a more scientific and practical approach to cargo accumulation modeling.
The new team, comprised of experienced analysts from the firms Instrat unit, as well as brokers from its Marine and Energy Specialty department, has also published a new report called Cargo Accumulation Modeling: The Guy Carpenter Approach.
The teams efforts have also resulted in the creation of the Guy Carpenter International Trade Database (ITD), which stores a vast number of historical trade patterns.
The accumulation of exposure in cargo insurance is an issue of critical importance for the marine insurance and reinsurance industries, said Dickie Whitaker, the managing director of Guy Carpenters Instrat unit said in a press release.
With increasing pressure on insurers to identify their accumulations and potential vulnerabilities more accurately, having a better grasp of potential accumulations within their portfolio of risks can be vital to a companys success. This means being able to understand, on a policy-by-policy basis, what types of cargo risk are being shipped, where and when quantities of cargo being shipped, and to and from where they are traveling.
The teams report divides port accumulation modelling into two distinct elements: the analysis of exposure accumulation, and the analysis of cargo vulnerability in the context of natural perils.
Guy Carpenter analyzes each element based on a methodology designed to identify the magnitude and seasonality of international trade volumes at global port locations. It also considers the total value of cargo stored at specified ports at any time of the year, and the likely cargo types involved.
The new approach to cargo accumulation modelling enables clients to:
assess the seasonality of their exposure at ports over time;
more accurately assess Probable Maximum Loss (PML) for various perils, cargo types and port locations;
improve capital modelling and Realistic Disaster Scenario (RDS) calculations;
provide improved information to reinsurers to achieve more reflective pricing;
assess the correct level of cargo catastrophe reinsurance cover more precisely; and
aggregate exposure accumulation estimates with other lines of business.
Cargo accumulations have previously been little understood and rarely quantified, so they presented our team with an ideal opportunity for scientific analysis and modelling, added Mr. Whitaker. What we have provided is a practical methodology for understanding cargo accumulation exposures that can be integrated easily with a host of other tools.