modeling catastrophe risk

PowerPoint Presentation

ModelingCatastrophe riskHemant ShahCo-Founder and CEO, Risk Management Solutions

Philippe Stephan, CTO

Confidential2013 Risk Management Solutions, Inc.

Perkins Coie palo Alto, California

SoilClass432

1Soil: Soft Rock to Stiff Soil (2.5)Liquefaction: Very LowLandslide: Very LowDTC 4.2 Miles SaAN3150 Porter DrivePalo Alto, CA

RMS 3 (Reinforced Concrete)2 stories, built 1966Approx. 35,000 ft2Earthquake Risk @ Perkins Coie


Soil map area is about 5 miles E-W by 4.6 N-S

Distance to faults: 4.2 miles to the San Andreas (SW)2 miles to Monte Vista-Shannon fault (SW). This one is a little dubious as to its activity level, however, so best to focus on SAFZ.15 miles to Hayward (NE)

Area of better soils to the southeast on the map are the low hills near their office.

Site photo from http://www.loopnet.com/Attachments/A/4/B/xy_A4B5D2D4-F087-416C-97CC-36E653530874__.jpg

2

Hemant and Weimin with Version 1.0, 1989

Photo from RLI Annual Report, 1990

Our history

2013 Risk Management Solutions, Inc.Confidential

Growing Sophistication of ModelsIRAS v1.017 diskettesRiskLink 13500,000+ diskettes

1 10 100 1,000 10,000 100,000 1,000,000 I9892014

Worldwide catastrophe risk management RMS Model Coverage

EarthquakeTropical CycloneWindstormSevere Convective StormWinter StormFloodTerrorismPandemicLongevity


RMS catastrophe models incorporate the latest science, over 20 years of dedicated catastrophe risk research and development, and partnerships with local institutions and leading regional experts. Catastrophe events are generated using RMS supercomputers and advanced numerical modeling on global simulation platforms.

We are committed to providing our clients with the best level of product support and client service. RMS clients have access to a wide array of resources and expertise, from dedicated account representatives, to scientific and technical experts, to unparalleled training and documentation.

6

Risk management solutionsHundreds of Clients in the Global Risk MarketWorlds Leading Catastrophe Modeling FirmIndividual Client Revenues from $100K - $10MM/YearSubscription Revenue Business Model1,300 EmployeesModels Used to Price, Structure and Underwrite Risk; Assess and Manage Capital; and Define Mitigation Strategies


Navigating the Risk Landscape for Over 20 Years

7

StochasticEvent ModuleHazardModuleExposure ModuleVulnerability ModuleFinancial AnalysisModule

8

Simulating PAN-EUROPE Flood

HIGH-RES OFF AND ON FLOODPLAIN

CORRELATION ACROSS 13 Countries

Europe flood is one of the first models that will showcase the benefits of HD-simulation.

This video a simulation of the weather over Europe over the course of several days. Blue colors indicate areas of high rainfall.

Flood modeling at high-resolution, on such a large scale is not possible on any of todays platforms.

The RMS europe flood model will cover 13 countries, on a single event set, allowing you to assess correlation between risks that are far away from each other. This matters, because of the length of the european rivers, which can flow through multiple countries.

By starting with rainfall, and modeling how that rainfall transforms to runoff and moves across the landscape, including the impacts of topography, soil type, temperature, season, evaporation, allows us to model the probability of flooding from rivers as well as flash floods, and the impact of snowfall and snowmelt, in summer and in winter, and account for potential clustering of events when the jet stream gets locked in place.

The model can be used for both portfolio management and underwriting individual risks.

With the time-based simulation, you can model important policies such as the hours clause, properly, by defining your own time windows relative to the event losses through time.

9

Terrorist Attack ScenarioA Risk Map

10

4.0%3.0%2.0%1.0%0.0%$200M$400M$600M$800M$1BLoss (USD) Exceedance Probability

Establish guidelines Differentiate risksAnalyze policy structuresDevelop pricing

Key ApplicationsDetermine risk driversEvaluate capital adequacyAllocate capitalEstimate losses

Determine reinsurance needsStructure risk transferCounterparty communicationUNDERWRITINGPORTFOLIO MANAGEMENTRISK TRANSFER


Underwriting: Field offices enter exposure data and review account analysis using RiskBrowser web interface. Underwriter investigates available capacity and prices risk. Central database is updated with exposure and account level results.

Portfolio Management: Using RiskLink, home office performs analysis of portfolio exposure to identify key accumulations, allocate capacity, determine reinsurance needs, and benchmark risk against capital requirements.

Risk Transfer: Brokers work with home office to structure reinsurance program and prepare exposure data. Reinsurers use RiskLink to price risk using detailed or aggregated exposure data and industry benchmarks.

12

Portfolio Management

Dynamic portfolio management

CapacityNew Quoted TotalNew Quoted ForecastBoundExpected RenewalIn-Force

Time


Dynamic portfolio management A Key aspect of RMS(one)14

Drill down into your book

View a multitude of metrics all in one place

Drill down into your book in real time by region, line of business, legal entity, and other customizable hierarchiesView a multitude of metrics (including exposure, modeled losses, profitability indicators, benchmarks, and capacity utilization) all in one place and investigate key drivers of risk and change15

Interact with multiple EP curves

Investigate the drivers of change

Interact with multiple EP (exceedance probability) curves to gain intuition around the events and contracts that drive different parts of the curve for a given portfolio and the associated sensitivities

Compare EP curves and investigate the drivers of change between different points in time16

Risk Transfer | Cat Bonds


Propose changing the format of this case study section frame it as Problem & Solution

This is the problem slideBadly hit in sandy (the image should say this)Problem criteria wereNeed Efficient cover, having failed to find capacity in the reinsurance marketSimple index in order that investors could take the risk without having to underwrite the complex portfolioSpeed of settlement (need a third one any better ideas?!)

18

8ftAT THE BATTERY. AS SIMPLE AS THAT.ATTACHMENT PROBABILITY1.7%

Metrocat triggered by simple coastal flood measurements at tide gauges in the NYC area. A very simple trigger, but required the most advanced coastal flood modelling to make this possible.

19

Case Study:MetrocAT Re 2013-1


The innovative non-traditional structure allowed MTA to close its storm surge insurance gap

Non-traditional deal of the yearBond Buyer magazine

MTA found that capacity dried up in the reinsurance market after sandy. They needed an efficient way to access capital, and found the ILS market ready to step in, using a parametric index. The deal won the Bond Buyer Magazine non-traditional deal of the year. 21

Metro cat bond in the news


Navigating the Risk Landscape for Over 20 Years

22

Supply Chain Risk

global supply chain

DistributionsParts SuppliersFacilityMaterial Suppliers

Tohoku Earthquake 2011caused supply disruptionMajor damage: Renesas(40% market share of MCU)

Thailand Flood 2011caused supply disruptionMajor production hub is damaged(25% of computer hard drives in the world)

Hurricane Sandy 2012 caused disruption of distribution centers

Explosion in Germany 2012caused supply disruptionEvonik damaged50% market share of Cyclododecatriene(CDT)


Cyclododecatriene (CDT) is a key component in a nylon resin called PA12, which is used to make a specialized plastic.The plastic is used in auto fuel lines and brake lines. It is also a component in solar cell, pipelines, sporting good and household items.Evonikaccounts for about 50 percent of the worlds CDT production, which estimated 40% of the world'sPA12 capacity

http://www.huffingtonpost.com/2012/04/17/pa12-resin-shortage-auto-car-production_n_1430884.htmlCyclododecatriene (CDT) is a key component in a nylon resin called PA12, which is used to make a specialized plastic.The plastic is used in auto fuel lines and brake lines. It is also a component in solar cell, pipelines, sporting good and household items.

PA12 has been in short supply for about two years, as demand from the solar industry increased. The Evonik incident will worsen the shortage, which could hit every major automaker, Sharland said, executive director of the Automotive Industry Action Group.

http://www.businessweek.com/news/2012-04-16/ube-says-it-s-receiving-resin-queries-after-evonik-blastEvonik, which is weighing an initial public offering of its stock by July 1,accounts for about 50 percent of the worlds CDT production, Ubes Sumiyoshi said.The PA-11 resin can be used as a partial substitute for PA-12, Sumiyoshi said.

http://www.icis.com/Articles/2012/04/30/9554265/news-focus-producers-scramble-to-provide-polyamide-12-alternatives-for-auto.htmlTheblastat Evonik Industries' cyclododecatriene (CDT) plant in Marl, Germany, has taken out an estimated 40% of the world'snylon12 (also known as polyamide 12, or PA-12) capacity, leaving automotive customers scrambling to find alternatives. Now producers of polyamides are working with automakers to fill the void with alternatives.

24

Example Supply-chain networkinAuto Industry

High Tech PartsMetal ForgingDomestic DistributionGlobal Distribution

DistributionsSuppliers (Parts)FacilitySuppliers (Parts)

EngineGearsTransmissionAssembling

Severe damage in Tohoku area


25

Example Supply-chain network

Network Topology and Conceptual ModelAnalytical Model

CBI Simulation Engine

Loss Model


26

The technology sideHive talkFebruary 5th, 2014Philippe Stephan, CTO


Key questions users ask

How much for this risk?

How is my portfolio?

What if something changed?

How we get to answersDamageT&C

$

EventLocationContract

D, EventIntensity

Events are compile-time objects

ScaleIn : 1 portfolio 1Gb of client dataOut: 1 model run 5T (* 8bytes) = 40Tb50K events100K locations1K damage samples=> Big Re. co: 5K portfolio 200Pb

Complexity

Non additivity of risk

Multiple what-ifs

Regulatory framework (keep, encrypt, audit)

CPU versus memory access

only realizable in the cloud

Our stack

Whats next for RMS(one)

A reference database of subjects at riskAn extensible exposure mgt systemAn ecosystem of modelsA generic risk exploration systemA communication platform

Hi from the RMS Sr. Management Team

37

modeling catastrophe risk

Technology