1 / 14

Catastrophe Modeling and Actuarial Applications

Catastrophe Modeling and Actuarial Applications Jonathan Evans, FCAS, MAAA Actuary Iowa Actuarial Club February 23, 2007 What Are Catastrophes ? Single events that produce such a large number of claims

Patman
Download Presentation

Catastrophe Modeling and Actuarial Applications

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Catastrophe Modeling and Actuarial Applications Jonathan Evans, FCAS, MAAA Actuary Iowa Actuarial Club February 23, 2007 1

  2. What Are Catastrophes ? • Single events that produce such a large number of claims – that it is very highly improbable such an event would actually occur (assuming risk exposures are independent) • Usually resulting from a special type of peril: hurricane, earthquake, terrorist attack, asbestos, etc. • More rarely, sometimes extremely large single claims are called “catastrophes” 2

  3. What Applications Make Actuaries Care About Catastrophes ? • Ratemaking for policies exposed to catastrophes, such as homeowners in Florida • Reserving for long tail catastrophic losses, such as asbestos in general liability • Analyses of reinsurance programs • Analyses of insurer catastrophe risk, such as catastrophic return period loss estimates 3

  4. Why Model Catastrophes ? • For non-catastrophic perils (such as an automobile accident that independently affects risk exposures or only a few risk exposures simultaneously) it is easy to gather a credible volume of experience • For catastrophic perils (such as hurricanes) even nationwide experience over many years may not be credible 4

  5. Catastrophic Versus Non-CatastrophicExperience 5

  6. Who Builds Catastrophe Models ? • Prior to the 1980s most models were built by insurers for underwriting purposes • From the 1980s to present most models were built by specialized modeling firms and sold as software, that allows users to input exposure information • Event databases and estimated frequencies are often prepared by scientists: geophysical for earthquake, atmospheric for hurricanes, social/behavioral for terrorism, etc. • Loss functions are often determined by engineers • Actuaries are mostly end users of models; except for reserving models for mass liability, such as asbestos/environmental, where actuaries have compiled databases and built their own models 6

  7. How Are Catastrophes Modeled ? Catastrophe models generally consist of: • A database of individual exposures, such as homeowners policies by location and insured value • A database of potential catastrophic events, such as hurricanes by landfall location and wind speed • A loss function that uses as input the characteristics of a single exposure from #1 and a single catastrophic event from #2 • Estimates for the frequency of each catastrophic event in #2 7

  8. Simplified Hypothetical Example Of A Catastrophe Model 2 1 3 4 8

  9. Example Of Calculating Loss For Policy A and Event U the loss is calculated as: 9

  10. Example Model Loss Output 10

  11. Example Ratemaking Application For Policy A 11

  12. Example Portfolio Risk Application 12

  13. Questions 13

  14. Further Reading -Bouska, Amy, “From Disability Income to Mega-Risks: Policy-Event Based Loss Estimation”, CAS Forum, Summer 1996. -Grossi, Patricia and Kunreuther, Howard, Catastrophe Modeling: A New Approach to Managing Risk (Huebner International Series on Risk, Insurance and Economic Security),Springer, 2005. -Kozlowski, Ronald T. and Mathewson, Stuart B., “Measuring and Managing Catastrophic Risk”, CAS Discussion Paper Program, 1995. -Woo, Gordon, The Mathematics of Natural Catastrophes, World Scientific Publishing Company, 1999. 14

More Related