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NHMA Practitioners Symposium
Understanding Catastrophe
Modelling
July 2015
• 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?
NHMA Practitioners Symposium 2
OUTLINE
NHMA Practitioners Symposium 3
WHAT RISKS ARE COMMONLY MODELLED?
CATASTROPHE MODELLING 101
Severe Convective Storm
Terrorism
Flood
Earthquake
Infectious Disease
Winterstorm
Hurricane
NHMA Practitioners Symposium 4
HOW DOES A CAT MODEL WORK?
CATASTROPHE MODELLING 101
Generate Stoch.
Events
Hurricane Severe Convective Storm
NHMA Practitioners Symposium 5
HOW DOES A CAT MODEL WORK?
CATASTROPHE MODELLING 101
Assess HazardGenerate Stoch.
Events
Event 1
Event 2
Flood
Event 1
Event 2
Earthquake
NHMA Practitioners Symposium 6
HOW DOES A CAT MODEL WORK?
CATASTROPHE MODELLING 101
Apply
Vulnerability
FloodHeight
% Damage
2nd floor
1st floor
Assess HazardGenerate Stoch.
Events
Severe Convective Storm
(Wind)
Earthquake
NHMA Practitioners Symposium 7
HOW DOES A CAT MODEL WORK?
CATASTROPHE MODELLING 101
Apply
Vulnerability
FloodHeight
% Damage
2nd floor
1st floor
Assess HazardGenerate Stoch.
Events
Flood
Calculate
Damage
FloodHeight
% Damage
2nd floor
1st floor
Water Line
$250k
$250k
$240k
$125k
NHMA Practitioners Symposium 8
HOW DOES A CAT MODEL WORK?
CATASTROPHE MODELLING 101
Apply
Vulnerability
FloodHeight
% Damage
2nd floor
1st floor
Assess HazardGenerate Stoch.
Events
Calculate
Damage
Quantify
Financial Loss
Limit = $180k
Deductible = $20k
Excess = $50k
Replacement=$250k
GroundUpLoss=$150k
Insurer Perspective
Ground up = 150k
Gross Loss =
150 – 20 = $130k
Insured’s Perspective
Ground up = $150k
Gross 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
Portfolio=$1B
GroundUpLoss=$600m
$200m xs $100m
Full Participation
$600m xs $300m
50% Participation
(Blue is non covered)
NHMA Practitioners Symposium 9
WHAT DOES A CAT MODEL TELL US?
CATASTROPHE MODELLING 101
ReturnPeriod(Years)
Loss ($)
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
$Y
NHMA Practitioners Symposium 10
WHAT DOES A CAT MODEL TELL US?
CATASTROPHE MODELLING 101
ReturnPeriod(Years)
Loss ($)
1
500
1000
1500
2000
Portfolio XYZ
Exceedance Curve
(By Hazard)
Average Annual
Loss (AAL) = $Y
Set Premium
Rates
Set Layers
Determine
Exclusion
NHMA Practitioners Symposium 11
WHO MAKES CAT MODELS?
CATASTROPHE MODELLING 101
Independent World Leaders
(Insurance Focused Models and
Platforms)
Insurance Focused
NHMA Practitioners Symposium 12
WHO MAKES CAT MODELS?
CATASTROPHE MODELLING 101
Independent Newcomers
(Models Only)
Other Govt. and
Educational
Institutions
NHMA Practitioners Symposium 13
WHO MAKES CAT MODELS?
CATASTROPHE MODELLING 101
Independent Newcomers
(Platforms)
NHMA Practitioners Symposium 14
WHO MAKES CAT MODELS?
CATASTROPHE MODELLING 101
Private
Etc.
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
NHMA Practitioners Symposium 16
WHAT IS OUT THERE BESIDES CAT MODELS?
CATASTROPHE MODELLING 101
Satellite/Orthophotos
NHMA Practitioners Symposium 17
WHAT IS OUT THERE BESIDES CAT MODELS?
CATASTROPHE MODELLING 101
Social Media
Enhanced Flood Insurance Rate Maps (E-FIRMs) v1.0 18
QUESTIONS?
?
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 Katz
Assistant Vice President
Flood Risk Specialist
345 California Street
Suite 20
San Francisco, CA 94104
E: brandon.katz@jltre.com
T: 415 733 4274
CONTACT
Enhanced Flood Insurance Rate Maps (E-FIRMs) v1.0 19

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Understanding Catastrophe Modeling

  • 1. NHMA Practitioners Symposium Understanding Catastrophe Modelling July 2015
  • 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? NHMA Practitioners Symposium 2 OUTLINE
  • 3. NHMA Practitioners Symposium 3 WHAT RISKS ARE COMMONLY MODELLED? CATASTROPHE MODELLING 101 Severe Convective Storm Terrorism Flood Earthquake Infectious Disease Winterstorm Hurricane
  • 4. NHMA Practitioners Symposium 4 HOW DOES A CAT MODEL WORK? CATASTROPHE MODELLING 101 Generate Stoch. Events Hurricane Severe Convective Storm
  • 5. NHMA Practitioners Symposium 5 HOW DOES A CAT MODEL WORK? CATASTROPHE MODELLING 101 Assess HazardGenerate Stoch. Events Event 1 Event 2 Flood Event 1 Event 2 Earthquake
  • 6. NHMA Practitioners Symposium 6 HOW DOES A CAT MODEL WORK? CATASTROPHE MODELLING 101 Apply Vulnerability FloodHeight % Damage 2nd floor 1st floor Assess HazardGenerate Stoch. Events Severe Convective Storm (Wind) Earthquake
  • 7. NHMA Practitioners Symposium 7 HOW DOES A CAT MODEL WORK? CATASTROPHE MODELLING 101 Apply Vulnerability FloodHeight % Damage 2nd floor 1st floor Assess HazardGenerate Stoch. Events Flood Calculate Damage FloodHeight % Damage 2nd floor 1st floor Water Line $250k $250k $240k $125k
  • 8. NHMA Practitioners Symposium 8 HOW DOES A CAT MODEL WORK? CATASTROPHE MODELLING 101 Apply Vulnerability FloodHeight % Damage 2nd floor 1st floor Assess HazardGenerate Stoch. Events Calculate Damage Quantify Financial Loss Limit = $180k Deductible = $20k Excess = $50k Replacement=$250k GroundUpLoss=$150k Insurer Perspective Ground up = 150k Gross Loss = 150 – 20 = $130k Insured’s Perspective Ground up = $150k Gross 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 Portfolio=$1B GroundUpLoss=$600m $200m xs $100m Full Participation $600m xs $300m 50% Participation (Blue is non covered)
  • 9. NHMA Practitioners Symposium 9 WHAT DOES A CAT MODEL TELL US? CATASTROPHE MODELLING 101 ReturnPeriod(Years) Loss ($) 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 $Y
  • 10. NHMA Practitioners Symposium 10 WHAT DOES A CAT MODEL TELL US? CATASTROPHE MODELLING 101 ReturnPeriod(Years) Loss ($) 1 500 1000 1500 2000 Portfolio XYZ Exceedance Curve (By Hazard) Average Annual Loss (AAL) = $Y Set Premium Rates Set Layers Determine Exclusion
  • 11. NHMA Practitioners Symposium 11 WHO MAKES CAT MODELS? CATASTROPHE MODELLING 101 Independent World Leaders (Insurance Focused Models and Platforms)
  • 12. Insurance Focused NHMA Practitioners Symposium 12 WHO MAKES CAT MODELS? CATASTROPHE MODELLING 101 Independent Newcomers (Models Only) Other Govt. and Educational Institutions
  • 13. NHMA Practitioners Symposium 13 WHO MAKES CAT MODELS? CATASTROPHE MODELLING 101 Independent Newcomers (Platforms)
  • 14. NHMA Practitioners Symposium 14 WHO MAKES CAT MODELS? CATASTROPHE MODELLING 101 Private Etc.
  • 15. 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
  • 16. NHMA Practitioners Symposium 16 WHAT IS OUT THERE BESIDES CAT MODELS? CATASTROPHE MODELLING 101 Satellite/Orthophotos
  • 17. NHMA Practitioners Symposium 17 WHAT IS OUT THERE BESIDES CAT MODELS? CATASTROPHE MODELLING 101 Social Media
  • 18. Enhanced Flood Insurance Rate Maps (E-FIRMs) v1.0 18 QUESTIONS? ?
  • 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 Katz Assistant Vice President Flood Risk Specialist 345 California Street Suite 20 San Francisco, CA 94104 E: brandon.katz@jltre.com T: 415 733 4274 CONTACT Enhanced Flood Insurance Rate Maps (E-FIRMs) v1.0 19