Collins developed its proprietary Catastrophe Portfolio Reinsurance Optimization (CatPRO) software program to help insurance companies actively manage their catastrophe exposures.

CatPRO identifies the "risk drivers": policies, locations, geographic areas or other risk factors within a portfolio that contribute a disproportionate share of risk relative to their premium contribution. Utilizing any level of detailed loss output from one of Collins' licensed catastrophe models, CatPRO can identify what's truly driving the risk in a portfolio, target areas for profitable growth, and explore the impacts of strategic scenarios on a portfolio's overall profitability.

Identifying a portfolio's risk drivers requires more than just analyzing Probable Maximum Loss (PML), Average Annual Loss (AAL), or AAL-to-Premium calculations. While CatPRO looks at all of these, any effective portfolio optimization must also take into account a risk's correlation with its underlying portfolio. To do this, CatPRO performs millions of simulations evaluating the marginal impact on key portfolio risk metrics (e.g. PML, PML-to-premium, tail conditional expectation (TCE), risk-based return (RBR), ceded pure premium, etc.) of adding or removing an individual risk or group of risks. CatPRO can be run in either Removal (descent) or Growth (ascent) modes.

Minimizing costs via "Net Cat Margin"

To help insurance companies minimize their reinsurance costs, CatPRO goes another step with Net Cat Margin (NCM), a proprietary optimization method that focuses directly on a portfolio's exposure-driven reinsurance cost.

NCM considers each risk's marginal impact on a portfolio's PML, premium, estimated reinsurance cost, and net retained AAL.

While CatPRO can perform an optimization analysis with any commonly used metric such as PML, PML-to-Premium, or risk-based return, Collins' unique NCM method, by focusing directly on a portfolio's net return, has been shown to outperform these other measures.

The effectiveness of the NCM method vs. other metrics is shown via one portfolio's example in the accompanying bar chart.

By utilizing CatPRO's powerful risk-by-risk algorithm along with our NCM optimization method, Collins is able to offer our clients the most comprehensive risk/return analysis available.