Guy Carpenter & Company published a new report on the effective use of property catastrophe models by property insurers.
The report addresses the merits of adopting a multi-model approach to estimate risk and control uncertainty. Three strategies for using multiple models are examined: model blending, model morphing and model fusion. The study also provides extensive background on how catastrophe models are used and the potential sources of uncertainty in cat model results.
John Major, Director of Actuarial Research, GC Analytics®, said, “Despite considerable refinement of catastrophe models since their introduction in the late 1980s, uncertainty remains - and it is a significantly bigger factor than many users may realize. While advances over the years have reduced the band of uncertainty around a typical probable maximum loss estimate, the consideration of smaller areas of geography only introduces more uncertainty.”