Fantasy Football & Catastrophe Risk Selection
More in common than you think
I received a companywide invitation for a Juniper Re fantasy football league from a recent college hire. While my immediate response was “Finally, a young professional showing some initiative”, as I thought about it more, I realized that there are a lot of similarities between a fantasy football draft and catastrophe risk selection.
1. Both are dominated by two models.
For fantasy football, the two most widely used platforms are ESPN and Yahoo.
These platforms develop player values or cheat sheets that recommend how much you should bid for a player in an auction style draft. In an auction style draft, members of your league have a defined salary cap and acquire players by bidding for them. The highest bid wins the player, and you continue to acquire players until your roster has been filed.
For catastrophe modeling, the two models that dominate the market are Moody’s RMS and Verisk.
Blindly following models is a recipe for being held hostage to overall market conditions. Gaining a competitive advantage involves developing your own view of risk by modifying a predominant model or utilizing an alternate model that aligns with your philosophy and experience.
In Fantasy Football…
The auction value for a player is built on underlying assumptions of expected points for the season. ESPN and Yahoo will have different values, but generally, running backs are often ranked high because they can score a lot of points. However, they are also more prone to injury, and you must consider if that uncertainty is worth your budget you spend.
For me, this risk is generally too great. I typically spend most of my money on receivers and tight ends. From there, I load up on mid-tier running backs with upside, with the expectation that a couple will emerge to be relevant. Instead of adjusting the ESPN or Yahoo values, I found a cheat sheet from a different vendor that aligns more with my philosophy, and I target players with a large differential between that and ESPN / Yahoo to get the greatest value.
Other important considerations include how your league scoring system compares to the one used to rank the players and position scarcity.
In Catastrophe Modeling…
The expected loss or Average Annual Loss (AAL) is derived based on numerous hazard and vulnerability assumptions from RMS and Verisk applied to a risk. By incorporating experience, intuition, and other data sources, a competitive advantage can be gained.
For example, Juniper Re integrates risk variables like defensible space, roof shape, and roof condition for its clients that can be input into the models, generating a more accurate AAL.
Perhaps your recent experience indicates the models do not provide enough variance based on roof age/condition. Developing an adjustment like this can be challenging but can pay large dividends. All situations are different, but my typical recommendation is to develop an adjusted view using RMS or Verisk because these schemas are the currency that is used in the market to evaluate and transfer risk.
2. Knowing your competition can get you better value
For Fantasy Football…
What cheat sheets are your competitors using for the draft? Do any of them love selecting their favorite players from the hometown team? Do most of them value top running backs, receivers, or quarterbacks?
Knowing your competition and tendencies allows you to get the best value from your draft.
For Catastrophe Modeling…
What types of risks does your competition like to target? What model(s) are they using?
Oftentimes, targeting the types of risks that others are shying away from with a different lens can yield favorable results.
3. Concentration requires a higher threshold to acquire risk
For Fantasy Football…
If you have three running backs on your roster already and you only start two, the opportunity cost of spending money on another running back becomes more expensive when there are other positions to fill.
For Catastrophe Modeling…
The same can be said about concentrated areas and catastrophe risk. Adding another risk in a concentrated area requires a higher price than if there was no exposure in a geographic area. It is important to have a quantitative concentration charge that you consider when writing a new risk.
4. Plans must be monitored and adjusted
A plan is great, but it can fall apart if you do not have the ability to monitor it or adjust if the situation warrants.
In Fantasy Football…
My strategy going into drafts is to pre-determine my team based on the recommended values with a little margin in case they go higher than indicated. As I go through the draft, I am continually checking if I should stick to my plan or adjust. Is a player better than the ones I targeted available at an unreasonably good value? Are the players I targeted going way higher than I expected to spend?
Outside of the draft, identifying players throughout the season to pick up and making weekly management decisions on who to start or sit is what defines consistently top performing teams.
In Catastrophe Modeling…
Having the tools to determine if you are executing your plan on a daily/weekly/monthly/yearly basis is paramount. This can involve dashboards that monitor growth, retention, and reduction in the areas and risk characteristics your plan details.
Maybe you have a plan to target a segment/geography because you feel the models undervalue this aspect. However, you find that the market is too competitive in this space and there is a distressed market in another segment/geography that you feel you can profitably write based on your unique view of risk. Being quick to pivot can be the key to success.
5. At the end of the day, both involve some luck
Sometimes the person who printed out a cheat sheet one minute before the draft and doesn’t make a single transaction all year ends up with the league winning team. As much as you would like to believe you have developed a silver bullet for how to pick the perfect team or portfolio, a fair amount of fate is outside your control. Being able to discern whether failure was related to a fundamental problem with your thought process, or just bad luck is where great judgement becomes crucial to long term success.
Happy risk selection season!
ABOUT JUNIPER RE, LLC.
Juniper Re is a specialist reinsurance broker, comprised of talented and trusted professionals with extensive experience and knowledge in the reinsurance broking and the broader (re)insurance industry. Our team has extensive expertise across broking, analytics, client service, risk and compliance, and operational disciplines. We use a dynamic, analytical, and collaborative, cross-disciplined approach to deliver insightful counsel and solutions to our clients. For more information, please visit www.juniperre.com.
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Contact Information
JUNIPER RE PRESS
Adam Miron
Head of Catastrophe Analytics, Juniper Re
763.350.8292
