This excerpt taken from the MRH 8-K filed Dec 4, 2007.
We use proprietary risk assessment tools and a three-pronged approach to manage risk in our organization. In simple terms, we continually ask ourselves three questions:
The first question is: What is the maximum amount we will insure in any one zone?
We set constraints, and we monitor accumulations in real-time using our internal exposure database. This allows us to view our terrorism or natural perils exposures at levels of resolution ranging from country to zip code to street address.
The second question is: How much are we willing to lose in a single event? We estimate our potential loss from a single event using a combination of outputs from our CATM system, underwriting experience, and selected stress scenarios.
Lastly, we ask: How much are we willing to lose from a series of events? We produce 100,000 years of simulated underwriting and investment returns in order to test the performance of our portfolio under various stress cases.
In addition to monitoring the underwriting and investment risk, our enterprise-wide approach to risk management also focuses on minimizing or eliminating the other operational risks inherent in our business.
For more details on our risk management approach and current exposures, please see Item 2 in our latest 10-Q filing.