Stress and scenario testing are important risk assessment tools. They also provide useful ways to prepare in advance for adverse scenarios so that management doesn’t have to create everything from first principles when something similar occurs. But trying to imagine scenarios, particularly very severe scenarios, isn’t straightforward. We don’t have many examples of very extreme …
Category archives: systemic risk
Move over cholera, here’s the Black Death
The Black Death, caused by the bacterium Yersinia pestis, wiped out 30 to 50 percent of Europe’s population between 1347 and 1351 Now, South Africa has been placed on high alert for a potential plague infection. Mortality rates are estimated anywhere between 30% and 100% without treatment. Many estimates are towards the top end of this …
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Collective nouns for cats
In my ASSA convention presentation on systemic risk last week, I took pains to highlight the difference between real systemic risk and mere catastrophic claim risk or even concentration risk. In this post I will cover these and other cats, the place of reinsurance including “feelings” and why this is hyper relevant for captives. To …
What is Systemic Risk?
Systemic risk is risk to the “system” in some way. In the financial services world, it is often defined in one of two ways: The risk of contagion, where failure of an entity leads to distress or failures of others [micro prudential] The risk of an event that can trigger serious consequences for the real economy. …