Actuarial risks consist of premium and reserve risks in the Property-Casualty segment as well as mortality risks in our Life/Health segment. In the Banking, Asset Management and Corporate segments actuarial risks are immaterial.
Property-Casualty segment
Premium risk is defined as an unexpected high loss volume resulting in an insufficient coverage from premiums. Premium risk is subdivided into catastrophe risk (CAT risk) and non-catastrophe risk (non-CAT risk). We primarily quantify and manage premium risks using actuarial models used to calculate premiums and to monitor claim patterns. Natural disasters such as earthquakes, storms and floods represent a special challenge for risk management. In order to measure such risks and better estimate the potential effects of natural disasters, we use special modeling techniques in which we combine data about our portfolio (such as the geographic distribution of insurance amounts), with simulated natural disaster scenarios to estimate the magnitude of potential damage. Where such models do not exist (for example, hail risk in Germany), we use a scenario-based methodology.
In order to manage exposures due to natural catastrophes, the Management Board of Allianz SE has defined an earnings volatility limit for these exposures. These limitations are based at both the operating unit and Group levels and define the amount Allianz is willing to lose in any such event with an occurrence probability of once in 250 years.
Reserve risk quantifies the risk of loss resulting from deviations between payments for incurred losses that have not yet been definitively settled and the reserves established to cover these payments, which may be due to the use of an insufficient basis for the calculation of reserves. We measure and manage reserve risks by constantly monitoring the development of the provisions for insurance claims that have been submitted but not yet settled in all companies, and change the provision for reserves as necessary. To the extent available, we use assumptions approved by supervisory authorities and actuarial associations to enhance our models.
Actuarial risks in property-casualty insurance have led to fluctuations of the loss ratio in our Property-Casualty segment over time, as shown below.
Life/Health segment
Mortality risk is the risk associated with variability in policyholder benefits resulting from the unpredictability of the (non)-incidence of death and the timing of its occurrence. For modeling mortality risk within our internal risk capital framework we distinguish mortality level, trend and calamity risk. Biometric assumptions, such as life expectancy, play a significant role. To the extent available, we use assumptions approved by supervisory authorities and actuarial associations to enhance our models.
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