understanding catastrophe modeling

19
NHMA Practitioners Symposium Understanding Catastrophe Modelling July 2015

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Page 1: Understanding Catastrophe Modeling

NHMA Practitioners SymposiumUnderstanding Catastrophe ModellingJuly 2015

Page 2: Understanding Catastrophe Modeling

NHMA Practitioners Symposium 2

• Catastrophe(Cat) Modelling 101

- What risks are commonly modelled?

- How does a cat model work?

- What does a cat model tell us?

- Who makes cat models?

- What is out there besides cat models?

OUTLINE

Page 3: Understanding Catastrophe Modeling

NHMA Practitioners Symposium 3

WHAT RISKS ARE COMMONLY MODELLED?CATASTROPHE MODELLING 101

Severe Convective Storm

TerrorismFlood

Earthquake

Infectious Disease

Winterstorm

Hurricane

Page 4: Understanding Catastrophe Modeling

NHMA Practitioners Symposium 4

HOW DOES A CAT MODEL WORK?CATASTROPHE MODELLING 101

Generate Stoch.Events

Hurricane Severe Convective Storm

Page 5: Understanding Catastrophe Modeling

NHMA Practitioners Symposium 5

HOW DOES A CAT MODEL WORK?CATASTROPHE MODELLING 101

Assess HazardGenerate Stoch.Events

Event 1

Event 2

FloodEvent 1

Event 2

Earthquake

Page 6: Understanding Catastrophe Modeling

NHMA Practitioners Symposium 6

HOW DOES A CAT MODEL WORK?CATASTROPHE MODELLING 101

Apply Vulnerability

Floo

d H

eigh

t

% Damage

2nd floor

1st floor

Assess HazardGenerate Stoch.Events

Severe Convective Storm (Wind)

Earthquake

Page 7: Understanding Catastrophe Modeling

NHMA Practitioners Symposium 7

HOW DOES A CAT MODEL WORK?CATASTROPHE MODELLING 101

Apply Vulnerability

Floo

d H

eigh

t

% Damage

2nd floor

1st floor

Assess HazardGenerate Stoch.Events

Flood

Calculate Damage

Floo

d H

eigh

t

% Damage

2nd floor

1st floor

Water Line

$250k$250k

$240k$125k

Page 8: Understanding Catastrophe Modeling

NHMA Practitioners Symposium 8

HOW DOES A CAT MODEL WORK?CATASTROPHE MODELLING 101

Apply Vulnerability

Floo

d H

eigh

t

% Damage

2nd floor

1st floor

Assess HazardGenerate Stoch.Events

Calculate Damage

Quantify Financial Loss

Limit = $180k

Deductible = $20k

Excess = $50k

Rep

lace

men

t = $

250k

Ground U

p Loss = $150k

Insurer Perspective

Ground up = 150kGross Loss = 150 – 20 = $130k

Insured’s Perspective

Ground up = $150kGross Loss = $20k

By Policy (Primary)

Limit = $180k

Deductible = $20k

Excess = $50k

Limit = $180k

Deductible = $20k

Excess = $50k

Limit = $180k

Deductible = $20k

Excess = $50k

By Portfolio (Reinsurer)

Limit = $180k

Deductible = $20k

Excess = $50k

Attachment = $100m

Excess = $100m

Port

folio

= $

1B

Ground U

p Loss = $600m

$200m xs $100mFull Participation

$600m xs $300m50% Participation

(Blue is non covered)

Page 9: Understanding Catastrophe Modeling

NHMA Practitioners Symposium 9

WHAT DOES A CAT MODEL TELL US?CATASTROPHE MODELLING 101

Retu

rn P

erio

d (Y

ears

)

Loss ($)

1

500

1000

1500

2000

Portfolio XYZ Exceedance Curve

(By Hazard)

This portfolio will experience a loss of X on average once every 1000 years

Every year there is a 1/1000 = 0.1%

chance of an event that causes X loss

Or

Average Annual Loss (AAL) = $Y

Over a X number of years, this portfolio will lose on average $Y

Page 10: Understanding Catastrophe Modeling

NHMA Practitioners Symposium 10

WHAT DOES A CAT MODEL TELL US?CATASTROPHE MODELLING 101

Retu

rn P

erio

d (Y

ears

)

Loss ($)

1

500

1000

1500

2000

Portfolio XYZ Exceedance Curve

(By Hazard)

Average Annual Loss (AAL) = $Y

Set Premium Rates

Set Layers

Determine Exclusion

Page 11: Understanding Catastrophe Modeling

NHMA Practitioners Symposium 11

WHO MAKES CAT MODELS?CATASTROPHE MODELLING 101

Independent World Leaders (Insurance Focused Models and

Platforms)

Page 12: Understanding Catastrophe Modeling

NHMA Practitioners Symposium 12

Insurance Focused

WHO MAKES CAT MODELS?CATASTROPHE MODELLING 101

Independent Newcomers(Models Only)

Other Govt. and Educational Institutions

Page 13: Understanding Catastrophe Modeling

NHMA Practitioners Symposium 13

WHO MAKES CAT MODELS?CATASTROPHE MODELLING 101

Independent Newcomers(Platforms)

Page 14: Understanding Catastrophe Modeling

NHMA Practitioners Symposium 14

WHO MAKES CAT MODELS?CATASTROPHE MODELLING 101

Private

Etc.

Page 15: Understanding Catastrophe Modeling

NHMA Practitioners Symposium 15

WHAT IS OUT THERE BESIDES CAT MODELS?CATASTROPHE MODELLING 101

• Global Detection and Event Measurement Systems

- Satellite based

- Drone/Orthophoto Based

- Social Media Based

Page 16: Understanding Catastrophe Modeling

NHMA Practitioners Symposium 16

WHAT IS OUT THERE BESIDES CAT MODELS?CATASTROPHE MODELLING 101

Satellite/Orthophotos

Page 17: Understanding Catastrophe Modeling

NHMA Practitioners Symposium 17

WHAT IS OUT THERE BESIDES CAT MODELS?CATASTROPHE MODELLING 101

Social Media

Page 18: Understanding Catastrophe Modeling

Enhanced Flood Insurance Rate Maps (E-FIRMs) v1.0 18

QUESTIONS?

???

Page 19: Understanding Catastrophe Modeling

Enhanced Flood Insurance Rate Maps (E-FIRMs) v1.0 19

This presentation by JLT Re (North America) Inc. is intended to provide only general information based on sources we believe are reliable.  JLT Re (North America) Inc. makes no representations or warranties, express or implied, as to the accuracy of any of the information herein, which is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such.  Any statements concerning tax, accounting, legal or regulatory matters should be understood to be general observations based solely on our experience as reinsurance brokers and risk consultants.  We are not tax, accounting, legal or regulatory professionals and any such information provided is not professional advice.  These matters should be reviewed with your own qualified advisors in these areas. This document may not be copied or reproduced in any form without the express permission of JLT Re (North America) Inc., except that clients of JLT Re (North America) Inc. need not obtain such permission when using this report for internal business purposes.

Brandon KatzAssistant Vice PresidentFlood Risk Specialist345 California Street Suite 20 San Francisco, CA 94104E: [email protected]: 415 733 4274

CONTACT