September 2nd, 2009

2009 YTD: Top Cat Modeling Stories

Posted at 1:00 PM ET

With Rendez-Vous 2009 coming to Monte Carlo next week, review the top stories of the year on catastrophe models below.

Five Ways to Make Cat Models More Effective: Catastrophe models don’t make decisions: they merely inform risk managers. To get more out of catastrophe models, therefore, you need to look at how they are used now — and where there’s room for improvement. Catastrophe model use still has untapped potential, which means you could have a hidden revenue and profit opportunity in your portfolio. Optimize how you work with catastrophe models, and you could make your capital more productive.

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(August 5, 2009)

Beware the Benign Hurricane Forecast: The 2009 hurricane season is expected to be moderate, but that’s no reason to let your defenses down. In setting your expectations for the coming months, it pays to consider severity as well as frequency. Most major forecasts address the number of storms anticipated — but they don’t account for severity. A mild Atlantic hurricane season could still trigger outsized insured losses, and an exposed (re)insurer could feel the shocks on its bottom line, return on equity (ROE) ratio, and even market capitalization.

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(July 15, 2009)

Get the Most Out of Cat Models (five-part series):

Part I: Manage the Unknown >>
(Monday, July 6, 2009)

Part II: Lessons from Ike >>
(Tuesday, July 7, 2009)

Part III: Model Diversification >>
(Wednesday, July 8, 2009)

Part IV: The Reinsurance Broker’s Role >>
(Thursday, July 9, 2009)

Part V: Creating New Ideas >>
(Friday, July 10, 2009)

Known Unknowns: The “black swan” is trumpeting! Last year, we saw the first-hand effects of random, unforeseen, and massive events. Catastrophe models — the tools we use to forecast disaster and protect capital — were shown to be quite fallible, leaving balance sheets exposed to more risk than carriers realized. Yet, maybe we’ve been a bit hasty in meting out blame. Catastrophe models have made great strides since they were first introduced, and our industry must continue to use them for a reason. What has emerged is an essential tension between the unknown and efforts to counteract it.

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(March 10, 2009)

Prevent Soil Swells from Eroding Capital: Shifting ground can move your portfolio. Subsidence, the damage caused to buildings due to ground movement resulting from the presence of expansive clay soils, can lead to costly claims that may not be expected. A subsidence problem can take years to materialize, which makes careful risk modeling incredibly valuable. Refining a sense of your portfolio’s subsidence exposure can help you manage your capital effectively, transfer risk if necessary, and improve your firm’s market performance.

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(February 3, 2009)

GC LiveCat Turns Last-Minute Decisions into a Competitive Advantage: The Guy Carpenter Hurricane Index helps (re)insurers assess the potential losses from hurricanes making landfall in the Atlantic Basin by defined regions: Northeast, Southeast, Florida, and Gulf. Guy Carpenter created this index in response to the (re)insurance industry’s questions about the credibility of catastrophe models after the 2004 and 2005 hurricane seasons and their need to better understand and manage their catastrophe risk. Unlike most indices, which do not differentiate by location and only take into account frequency or severity and historical climatologic information, the Guy Carpenter Hurricane Index also considers current meteorological information and forecasts about live events, the forecast landfall location, and the forecast landfall probability and the conditional severity.

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(July 20, 2009)

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