Risk modelling involves quantifying future events and risks that can have an adverse impact, typically drawing upon past experience.

In recent years, modelling has broadened from catastrophic risks to include all sorts of areas of uncertainty that may afflict a business, such as the capital required for captives.

Modelling is an increasingly important part of the decision-making process, but should not be viewed as the 'last word' on assessing and controlling risk.

Critical questions you need to consider

• Do you know the risks that contribute to your largest earnings volatility?

• Are you convinced that a sufficient degree of actuarial science goes into your insurance programme design?

• Have you considered using confidence estimates for capital and funding issues?

• Have you modelled your natural catastrophe exposures?