October 26th, 2010

Modeling Capabilities in Europe

Posted at 1:00 AM ET

lefebvre_claude_gcciClaude Lefebvre, Head of GC Analytics European Operations
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Insurance-related catastrophe modeling has undergone a constant evolutionary drive for the past 25 years. The impetus behind the development of cat models began with the realization that large-scale events needed tracking to provide better means of managing insurance exposures to natural disasters.

While model vendor companies have concentrated on larger perils in the more dominant markets, there has been growing interest in cat modeling for different perils, particularly in developing markets - notably Central and Eastern Europe (CEE) and the Asia Pacific region. From an insurance perspective, flood - the largest peril in the CEE region - can be difficult to model, given the high degree of correlation between different CEE countries. This correlation is driven by the countries’ relatively small size and close proximity, making them prone to being affected by the same meteorological events and river systems flowing through multiple countries (most notably, the Danube).

Guy Carpenter’s own Model Development team was formed in 2004 to address this critical issue and subsequently has developed a number of cat models. Two recent developments include a Pan-CEE and a France flood model. The CEE model was developed to address the issue of flood risk on both a per-country and regional basis. The model currently covers six countries and will be expanded over the next few years.

Flood events in France are in most cases reinsured under the Caisse Centrale de Réassurance (CCR) Nat Cat scheme, which triggers recoveries when large-scale events or a high frequency of events are declared state emergencies. Guy Carpenter developed a high-resolution flood model to quantify, underwrite and help manage the flood risk whether it is reinsured under the CCR scheme or not. Guy Carpenter’s state-of-the-art France flood model includes 80,000km of river modelled at 5m resolution, combined with a detailed probabilistic event-set and advanced loss modelling. The France flood model complements a probabilistic model for subsidence that Guy Carpenter had previously released. When combined with vendor models for wind and earthquake, this new model allows Guy Carpenter to be the first organisation to provide a comprehensive view of the four major perils affecting France.

As we enter the new Solvency II regulatory regime, better risk management tools will be necessary for firms who wish to manage their capital requirements as opposed to adopting the standard formula. A wide array of modeling options, combined with better data quality, will allow insurers and reinsurers to proactively deal with the stringent capital requirements under Solvency II. Guy Carpenter provides an extensive model offering, including:

  • Our Solvency II proprietary economic capital model (MetaRisk
  • Proprietary catastrophe models (G-CAT)
  • Casualty clash model (CasCat) developed in conjunction with Arium Ltd. The first of its kind enabling insurers to adopt a proactive approach to the management of catastrophe risk in their casualty portfolio, providing a vital information processing platform without which a fully probabilistic cat model cannot be achieved
  • Marine Cargo Accumulation Tool. This model uses the worldwide marine traffic in the different harbors, enabling insurers to better manage their cargo exposure across the globe.
  • State-of-the-art dynamic reserving model allowing companies to better quantify their reserving risks (DRM).

Guy Carpenter continuously strives to offer unparalleled analytical, advisory and placement expertise and prides itself as the leader in risk management information, insight and innovation.

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