Managing Extreme Events presents a framework to consider how extreme events can be measured, managed, and mitigated.
Measure
Risk measurement involves attempting to quantify the likelihood and severity of the risks facing the business. This enable companies to make informed decisions and to respond to stakeholders more effectively. Measurement approaches and modelling continues to evolve and requires a deep understanding of the exposures, the potential for loss, correlation as well as considering qualitative aspects.
Manage
Managing extreme events considers the overall company objective, and links to companies risk appetite and risk tolerance. How extreme events are managed will directly impact economic and regulatory considerations.
Mitigation
Risk mitigation involves comparing measured risk versus the company risk tolerance, and taking actions to align risk exposures to risk appetite. A wide range of risk mitigation solutions that can be employed, driven by product development in traditional reinsurance, and innovation in alternative risk transfer.
Ultimately, communication along each step of this process is important to provide a holistic risk framework to the understanding and management of extreme risks.