The BWR&B team has developed a family of risk simulation models
which have a wide variety of uses for both small insurance companies
and self-insured entities. The model "simulates" the five-year underwriting
and investment experience of the entity over a designated number of
random trials (usually 10,000 or more). Using this "Monte Carlo" technique,
the user can estimate the probability distribution of aggregate losses,
which can be used to address questions such as:
- Optimal loss retentions to cover retained losses at an acceptably
high confidence level.
- Minimum number of exposure units required to self insure (at a given
retention limit) at an acceptably high confidence level.
- Amount of assets and/or contingency margin in rates required to
cover payout of prior years' unpaid claims and future years' claims
- given a particular retention and other parameters.
Versions of the BWR&B risk model have been used extensively for self
insured trust funding for various liability lines and Workers' Compensation.
Other versions have been used as valuable input in reinsurance negotiations.