RQE – EQECAT’s new platform Risk Quantification & Engineering

Americas/Caribbean: •39 EQ countries •32 TC countries •3 WS countries •GOM Offshore Energy •US EQ Workers Comp •US Flood •US Tornado/Hail •US Wildfire •US Winterstorm

Asia/Pacific: •14 EQ countries •11 TC countries •1 WS country

Europe: •22 EQ countries •28 WS countries •5 Flood countries

Africa/Middle East: •12 EQ countries •4 TC countries •4 WS countries

EQECAT Models – Global Coverage • Covering 90% of Global GDP – spanning the insured

world; 181 peril models for 95 countries

Catastrophe Risk

Foundation of CAT Modeling Multi-Disciplinary Research

Meteorologist

Seismologist

Mathematician

Geotech Engineer

Structure Engineer

Hydrologist Software Engineer

Statistician

Actuary Operation Researcher

EQECAT Catastrophe Models – A story of innovation

EQE Develops EQ Model for Engineering Support

EQE Develops 1st EQ FF Model

Develops 1st EQ Sprinkler Leakage Model

Develops 3D EQ Fault Model/ Spectral Parameters

Develops Time Dependency EQ Model Conducts Analytics for 1st Securitization Develops NE Asymmetrical Storm Methodology Helps in Formation of CEA

Eurowind – based on Historic SLP Records

Euroflood Aggregate Model Releases WORLDCATenterprise platform

T&H and Winterstorm Models Eurowind – Measured Wind Speeds Dynamic Financial 150,000 Year Model

Euroquake Regional model

Eurowind Hybrid Model Germany Austria Flood in WCe

EQE International Founded

EQECAT founded as JV between EQE and GC

Wholly-Owned by EQE

Professional Service Provider of Year – Review

EQE International Acquired by ABS Group

1. Professional Service Provider of Year - Review

EQECAT Transformation begins

1981 1987 1992 1994 1998 2000 2001 2003 2006 2009

Warm AMO HU Freq. 1st to use soils based attenuation 1st to adopt UCERF 1.0

2010

New basin-wide Asia Typhoon (incorporating wind, storm surge, and rainfall flooding) wins Innovation of the Year at Asia Insurance Awards

2011

Named "Best Risk Modeling Firm" at 2011 Reactions Global Awards

2012

RQE V 13 Released

Named "Best Risk Modeling Firm" at 2012 Reactions Global Awards

2013

The Principles for RQE

Which part of Cat Modeling is important to you?

• The Science – Treatment of uncertainty – Transparency – Methodology

• The Analytics – Modeling the complexity of the (re)insurance conditions – Confidence in the results

• The Platform – Integration into the workflow – Scalability for performance

RQE Science

Analytics Platform

RQE - The Science

RQE Science

Analytics Platform

The Science

Cat modeling deals with uncertainty

• We improve our understanding in order to – Quantify the random element – Reduce the epistemic element

• Following are some examples

RQE Science

Analytics Platform

Types of Uncertainty Epistemic – lack of understanding, reduced by better knowledge Aleatoric – inherent randomness, can quantify but not reduce

UNDERSTANDING AND MODELING OF UNCERTAINTY

• Understanding uncertainty in – Hazard – Vulnerability – Modeling

The Science: Earthquake • Methodology

– Soil-based attenuation – Time dependency

• World-class scientists – Dr. Ken Campbell, Vice President of Model Development: With over 40 years of

seismic hazard evaluation experience is one of the world’s leading experts on ground motion attenuation, formerly with the USGS, and a current member of the USGS National Seismic Hazard Mapping Advisory Panel

– Paul Thenhaus, Senior Geologist: With 36 years of seismic hazard evaluation experience, spent the first 17 years of his career with the USGS on the National Seismic Hazard Mapping Team and has served as the lead investigator on numerous seismic hazard evaluations worldwide.

• Relationships – Close collaborative relationships with many of the world’s national seismic hazard

agencies, including: the United States Geological Survey (USGS), Geological Survey of Canada (GSC), Geoscience Australia (GA), and Geological and Nuclear Sciences New Zealand (GNS), and many others.

• CEA Exclusive: – EQECAT, maintains a close relationship with the California Earthquake Authority (CEA)

and remains the only commercially available earthquake model used by the CEA for pricing their policies

RQE Science

Analytics Platform

Leading Edge Technology • Attenuation is a source of

significant uncertainty • New methodology developed

to avoid unnecessary bias

Downtown LA

Rock (orange & brown)

Burbank

Hollywood

Soil (yellow & green)

RQE Science

Analytics Platform

Earthquake: Soil-Based Attenuation

Soil-Based Attenuation: • Captures exposure better

– more exposure is located on soil

• Reflects the measured data – more ground motion recordings

are located on soil

• Smaller amplification factors – Less uncertainty in losses

The Science: Topical Cyclone Model • Pioneers in creating basin wide model- North Atlantic Model and Asia Typhoon

Model • North Atlantic Hurricane Model

– Methodology: • High resolution, 16 Directional time stepping wind field model • Near Term view of risk based on AMP (Atlantic Multi-Decadal Oscillation)

– Expert review • Robert Tuleya, formerly with the GFDL Hurricane group and presently developing and

upgrading the next generation HWRF, reviewed EQECAT’s hurricane windfield model • Dr. Gamil Serag Eldin and Dr. Kashif Ali performed independent reviews of the computer

science aspects of the model in 2013 – Model Certification

• EQECAT’s North Atlantic Hurricane Model has been successfully certificated by the FCHLPM since the inception of the process in 1997.

• Asia Typhoon Model – Widest Geography coverages- 9 territories (7 countries) – First to introduce a basin wide model, with detailed winds, storms surge and rainfall

flooding model – Expert review

• Prof. Johnny Chan, City Univ. of Hong Kong; Director, Guy Carpenter Asia-Pacific Climate Impact Centre and others

• Date Stamping for all events within weather peril models.

RQE Science

Analytics Platform

The Science: Eurowind

RQE Science

Analytics Platform

Windspeed Modeling

Maximum Windspeed: over 75m/s (146Kts)

Temperature Range: -50 to +70 °C

Accuracy:

1% of reading between 10 and 55 m/s, 2% above 55m/s

Hazard (m/s)

Loss

(€)

Vulnerability (%)

• Eurowind is based on actual windspeeds

• Uncertainty propagates from hazard to loss

• Using accurate windspeeds reduces a large element of this uncertainty

RQE Science

Analytics Platform

ABS Consulting Risk Management &

Engineering Consulting

Insurance and Financial Communities

EQECAT Catastrophe

Modeling

Engineering-Based Vulnerabilities

• Draw upon ABS’ years of experience and access to global expert engineers

• Continuous feedback loop with ABS: – Thousands of seismic evaluation studies – Over 90 Post Earthquake investigations and

retrofitting – Offshore energy platform classification

• Derived from & validated by – Historical damage & claims – Engineering analysis: consistency,

comprehensiveness – Post event investigations (largest experience

database) – Expert opinion (code, similarity, local

conditions, etc.)

RQE - The Analytics

RQE Science

Analytics Platform

The Analytics

Cat modeling is about pricing and capital allocation – Can we model the complexities of our policy wordings?

– Are we capturing the tail of the distribution?

– How confident am I in the results?

RQE Science

Analytics Platform

Simulation with Discrete Samples

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Sam

ple

Dam

age

and

Loss

Rat

io

Sample

The loss calculation is performed on each individual damage sample. In this example,

•Deductible =5% •Limit = 25% of TIV

Sample statistics are easy to calculate – sum all samples and divide by the number of samples. In this example, the average damage = 12%, and sigma is about 15%.

GU Damage

Gross Loss

RQE Science

Analytics Platform

01

23

45

67

89

10

05

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15

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25

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35

40

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23

45

67

89

10

02468

10

12

01

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89

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05

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25

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Modeling of Correlation

RQE Science

Analytics Platform

01

23

45

67

89

10

012345678

SRA 300,000 Years

Any aggregation Level

(e.g. Portfolio Level)

Event Frequency

Simulated Losses

Frequency distribution used to set which years Each event becomes multiple outcomes throughout the simulation period

Severity distribution samples set the loss in each year

Stochastic event set

Year Loss Table (YLT) is list of losses in each year

RQE Science

Analytics Platform

Loss Metrics – all derived from YLT

Expected annual loss EAL = Mean sum of losses for all years

Per occurrence exceedance OEP = Sort vector of Max loss per year

Annual aggregate exceedance AEP = Sort vector of Sum of losses in each year

Event Loss Table ELT = Mean & SD of losses for each event

RQE Science

Analytics Platform

Portfolio Accumulation

YLT-1

YLT-2

YLT-n

Combined YLT

Accumulation: Simply add the losses for each event in each year

Marginal effects: Simply add or subtract the target YLT

RQE Science

Analytics Platform

RQE - The Platform

RQE Science

Analytics Platform

The High Performance Platform

Cat Modeling now fits efficiently into workflow

RQE is:

– Configurable : to import data directly

– Scalable : to obtain high speed efficiency

– Transparent : to validate inputs and outputs

RQE Science

Analytics Platform

The Enabling Platform

RQE Science

Analytics Platform

A

B C

D

Performance Architecture Scalable and Manageable

Insured Exposure Data A model for today’s business

Output Results For Integration with Models and tools

Graphical and programmatic interfaces The flexibility needed in today’s world

Analysis Cluster

Server Workstation

Performance Architecture

RQE 13 • 2 clients

• Java GUI • XML API

• Scalable App Server • Wintel • Proprietary

cluster launch • SQL Server dBase

• Standard edition

Future • 2 clients

• Java GUI • XML API

• Scalable App Server • Wintel • HPC / Azure

cloud support • SQL Server dBase

• Standard edition

• Enterprise edition

RQE Science

Analytics Platform

Performance Scalability

Analyses are de-composed into a serialized queue of parallel tasks. Large analyses consist of hundreds of tasks Smaller tasks are run in parallel Analyses are processed in FIFO queues Multiple queues enable the prioritization of jobs

RQE Science

Analytics Platform

RQE Databases

• EQECAT Common – Basic tables to control licensing and features

• EQECAT System – Read-only tables for features

• EDB, IDB, RDB – A trio of databases for a single exposure grouping (exposure, results, intermediate binary files)

• User databases can be shared (copied) between RQE users

System

User

RQE Science

Analytics Platform

Fitting the Workflow - Import

Convenient import from a variety of sources Source type:

– Single file – Relational fileset – SQL database

Data format:

– Spreadsheet (.xlsx, .xlsm) – Text file (.txt, .csv) – SQL Server database

RQE Science

Analytics Platform

Fitting the Workflow - Templates

Use of templates allows minimal mouse clicks!

RQE Science

Analytics Platform

Fitting the Workflow - Automation

• Embed into the corporate workbench – Import exposure – Retrieve results – Manage databases – Full functionality

• API and associated tools

– XML-based – Implement with .Net, VBA, etc.

• Advantages

– Less user training – Fits into the standard workflow

RQE Science

Analytics Platform

EQECAT’s Office Locations

• San Francisco Bay Area (Oakland, CA) Global headquarters; Executive, model and product development

• New York Area (Hackensack, NJ) Executive, client development, product support

• Irvine, California Software development

• London, UK Client development, product support

• Paris, France Model development, client development

• Tokyo, Japan Client development, product support

• India Software development

Oakland, CA

Hackensack, NJ

London, UK

www.eqecat.com/

Thank You