400 likes | 797 Views
Lloyd’s Realistic Disaster Scenarios. 14 th October 2004. Background to Lloyd’s. In existence since 1688 World's leading insurance market 66 syndicates Over 160 brokers Capacity of approximately £15.0 billion. Profile of the Lloyd’s Market. A .
E N D
Lloyd’sRealistic Disaster Scenarios 14th October 2004
Background to Lloyd’s • In existence since 1688 • World's leading insurance market • 66 syndicates • Over 160 brokers • Capacity of approximately £15.0 billion
Lloyd’s Realistic Disaster Scenarios(RDSs) • Lloyd’s RDSs were introduced in 1995 • Requiring syndicates to carry out disaster planning • Based on a range of hypothetical scenarios • Scenarios mainly based on historical disasters • “Failure of North Sea Complex” – from Piper Alpha • “Marine Collision” – from Exxon Valdez • “Japanese Earthquake” – from 1923 Great Kanto Event
RDS Overhaul Project • Two year RDS Overhaul Project • Improve consistency of risk assessment • Raise Loss Modelling standards in the market • Collaborative Process • Market Experts Group • Lloyd’s Market Association – Marine RDS • AIR, EQECAT and RMS • Florida Windstorm • California Earthquake • Overhaul to be Completed in April 2005 • Will take account of feedback received in 2004
Why Overhaul the RDSs? • To provide a more reliable and accurate measurement of risk, based on a more comprehensive and consistent approach • To measure the market’s and syndicates’ exposures to a series of major catastrophes • RDS assumptions and practices varied widely • Significant variations observed in “Aggregate” to “Gross Loss” relationships • Wide variations in methodologies • To provide a better understanding of Lloyd’s aggregate risk profile • For catastrophes • As an input to capital setting and allocation decisions • As an input in managing Central Fund exposures
RDS Guidance and Instruction • Issued in April 2004 • Replaces previous “Regulatory Bulletins” with a comprehensive guide to the assessment of catastrophe exposures • Key sections include • Definitions • Calculation Principles • Recommended Best Practice • “Event Subset” Submissions • Scenarios and Events • Available on Risk Management Website • www.lloyds.com/riskmanagement
Scenarios and Events AGGREGATING SCENARIOS 11 Second Event 12 Florida Windstorm 13 California Earthquake 14 New Madrid Earthquake 15 European Windstorm 16 Japanese Earthquake 17 Terrorism SINGLE RISK SCENARIOS 1 USA Windstorm 2 Marine Event 3 North Sea – Loss of Major Complex 4 Aviation Collision 5 Major Risk Loss 6 Satellite Risks 7 Liability Risks 8 Political Risks 9 Alternative RDS: A 10 Alternative RDS: B
Marine RDS • Syndicates must return two scenarios • Collision in Prince William sound • Major Cruise Vessel Incident • Increased guidance for both scenarios • Specification of losses to the International Group of P&I Associations Reinsurance Programme.
California Earthquake EVENT FOOTPRINTS EXPOSURE DISTRIBUTION
Catastrophe Loss Modelling Software – Florida Windstorm & California Earthquake • Three agencies - AIR, EQECAT & RMS • Working with the three catastrophe modelling agencies has enabled us to: • Specify new events tightly, by industry loss level • US$70bn and $54bn respectively • Based on Commercial (including Industrial) and Residential losses • Specify 2 events of similar magnitude • Better coverage of risk (e.g. LA and San Francisco) • Derive Average Damage Factors • Feasible events cannot destroy all properties
Florida Windstorm and California Earthquake • County level “Footprints” • “Aggregate” to be based on county exposures in “Footprint” • County level damage factors • Derived from discussions with AIR, EQECAT and RMS • Prompt for additional lines of business to include • Marine, Specie/Fine Art, Personal Accident, Aviation, Liability • Exclusion of classes viewed as “impossible” to model • Contingent Business Interruption • Aviation Hull in Earthquake
RMS “Roll-up” exercise • Pilot study with five managing agents • Combining Event Loss Table output • To validate choice of new RDS events • To assess feasibility of combining syndicate results • Analysis split by broad business categories • Direct & Facultative • Treaty • Binder
Terrorism RDS • 2-tonne conventional bomb attack on Empire State Building • Damage zones and levels specified in scenario • TRIA and non-TRIA events • Specification of deaths, injuries and BI • Fire-following, Number of Events and CBRN Guidance • Focus on data resolution • Address-level best for urban accumulations • Guidance for proportions in 10001, 10016 and 10018
Data Resolution Source: Munich Re. Topics Geo 2003
RDS Results Playback • Visits • Each Managing Agent visited by two or more Risk Executives • General questions asked concerning: • Data capture and resolution of data • Identifying relevant policies • Loss calculation and expected values • The return process & quality assurance • Modelling methods • Review of one RDS scenario from start to finish
RDS Results Playback • Packs • Every syndicate receives a pack prepared solely for their own use. • Contains syndicate specific analysis on: • Aggregate, Gross, Net and Final Net losses • Losses in relation to capacity and hence Franchise Performance Guidelines • Ranking within the market • Includes analysis on modelling types at both market and syndicate level for each scenario. • Graphical representation of Losses, Average Damage Factors (ADFs) and Ranking.
Four-Stormed is Forearmed 14 October 2004
How Hurricanes are Formed • Thunderstorms drift over warm ocean waters. • Warm air from the storm and ocean surface combine and begin rising, creating low pressure. • Trade winds blowing in opposing directions cause the storm to start spinning. • The rising warm air causes pressure to decrease at higher altitudes. • Air rises faster and faster to fill this low pressure, in turn drawing more warm air off the sea and sucking cooler, drier air downwards. • As the storm moves over the ocean it picks up more warm, moist air. Wind speeds start to increase as more air is sucked into the low pressure centre. • It can take hours or several days for a depression to grow into a fully-formed hurricane.
Lloyd’s 2004 Realistic Disaster ScenariosDistribution of Florida Property Values
Hurricane Charley – The facts • Hurricane Charley made landfall at Sanibel Island, Florida, late on the afternoon of 13 August 2004. • Maximum sustained winds were near 145 mph after upgrading to a Category 4 storm, causing severe damage and flooding in coastal areas. • Hurricane Charley had been expected to make landfall near Tampa, 120 miles to the north, but shifted course at midday and brushed low-lying islands. • Charley was responsible for the death of 27 people in Florida.
RDS 2004 - Pinellas Hurricane Event Footprint Estimation of track of Hurricane Charley
Hurricane Frances – The facts • Hurricane Frances made landfall at Sewall’s Point in Martin County, Florida, at 05:00 GMT on Sunday 5th September. • Maximum sustained winds were near 105 mph and Frances dropped more than 33cm of rain along Florida’s east-central coast. • Insured losses will be limited because much of the damage has been caused by flooding, which is covered by the National Flood Insurance Program. • Frances was responsible for the death of 23 people in Florida.
RDS 2004Miami-Dade Hurricane Event Footprint Estimation of track of Hurricane Frances
Tracks of Hurricane Charley & Hurricane Frances Source: Guy Carp.com. Cat-i Reports Hurricane Frances Update- Report 10, September 7, 2004
Hurricane Ivan – The facts • Hurricane Ivan made landfall just west of Gulf Shores in Baldwin County, Alabama at 07:00 GMT on Thursday 16th September. • Maximum sustained winds were near 130 mph when it came ashore and subsequently moved inland and weakened. • Ivan was responsible for the death of at least 50 people in the United States in addition to over 70 people in the Caribbean.
Tracks of Hurricanes Charley, Frances & Ivan Source: Guy Carp.com. Cat-i Reports Hurricane Ivan Update- Report 13, September 17, 2004
Hurricane Jeanne – The facts • Hurricane Jeanne made landfall near Hutchinson Island just east of Stuart in Martin County, Florida at 04:00 GMT on Sunday 26th September. • Maximum sustained winds were near 120 mph (Cat 3) when it came ashore and subsequently moved inland and weakened. • Jeanne was responsible for the death of at least 3,000 people in Haiti mainly due to flooding and 8 people in Florida.
Track of Hurricane Jeanne Source: Guy Carp.com. Cat-i Reports Hurricane Jeanne Update- Report 7, September 27, 2004
Tracks of the Four Hurricanes Source: Guy Carp.com. Cat-i Reports Hurricane Jeanne Update- Report 7, September 27, 2004