CAT Modeling
Catastrophe Modeling or CAT Modeling is the process of analyzing risks and estimating losses to property caused by natural catastrophes (hurricanes, earthquakes, floods etc.) and man-made catastrophes (terrorism), by the use of sophisticated and complex computer programs that model these events.
Eg.
For Atlantic & Gulf Coasts, hurricane model simulates over 18,000 events in a 10,000 year simulation; earthquake model simulates over 1000,000 events in a
10,000 year simulation and terrorism model simulates over 5,500,000 events in a 500,000year simulation. Using the model, an insurer might estimate that their portfolio of policies in Florida could incur total insured losses of US$1 bn or more once in fifty years (a 2% annual profitability), while a loss of US$3 bn or more is likely to accrue once in 250 years (a 0.4% annual profitability).
Uses
1. Exposure Management-geogr distbn, losses
2. Portfolio Optimization
3. Mitigation Strategies-loss redn intitiatives thru ‘what if’ strategies
4. Ratemaking-quantification & justification of risk component of rates
5. Insurance Coverage
6. Marginal Impact-assessing impact of adding or deleting of properties to existing portfolio
7. Underwriting-guidance
CAT Models-Then and Now
1. First generation catastrophic models
2. Shorter simulated event sets
3. Damageability relationships
4. Limited amount of actual claims
Catastrophe Modeling or CAT Modeling is the process of analyzing risks and estimating losses to property caused by natural catastrophes (hurricanes, earthquakes, floods etc.) and man-made catastrophes (terrorism), by the use of sophisticated and complex computer programs that model these events.
Eg.
For Atlantic & Gulf Coasts, hurricane model simulates over 18,000 events in a 10,000 year simulation; earthquake model simulates over 1000,000 events in a
10,000 year simulation and terrorism model simulates over 5,500,000 events in a 500,000year simulation. Using the model, an insurer might estimate that their portfolio of policies in Florida could incur total insured losses of US$1 bn or more once in fifty years (a 2% annual profitability), while a loss of US$3 bn or more is likely to accrue once in 250 years (a 0.4% annual profitability).
Uses
1. Exposure Management-geogr distbn, losses
2. Portfolio Optimization
3. Mitigation Strategies-loss redn intitiatives thru ‘what if’ strategies
4. Ratemaking-quantification & justification of risk component of rates
5. Insurance Coverage
6. Marginal Impact-assessing impact of adding or deleting of properties to existing portfolio
7. Underwriting-guidance
CAT Models-Then and Now
1. First generation catastrophic models
2. Shorter simulated event sets
3. Damageability relationships
4. Limited amount of actual claims