🌪️ Catastrophe Modeling: Data-Driven Risk Quantification
At Island Re, Catastrophe (CAT) Modeling is the foundation of our strategic risk transfer advice. We transform complex, volatile natural and man-made hazards into quantifiable financial outcomes, allowing our clients to make informed decisions about capital allocation and risk retention.
The Core Value of CAT Modeling
Catastrophe models are sophisticated analytical tools that merge hazard, exposure, and vulnerability to estimate potential losses from catastrophic events. We use these models to:
- Determine Probable Maximum Loss (PML): Calculating the largest loss that an insurer or reinsurer is likely to suffer in a given period (e.g., the 1-in-250 year event).
- Price Reinsurance: Accurately calculating the expected loss cost component of reinsurance premiums.
- Optimize Portfolio Management: Identifying and managing geographic and peril accumulations to avoid unforeseen loss concentrations.
- Meet Regulatory Requirements: Providing the necessary metrics for solvency calculations (e.g., BSCR or Solvency II).
Our Integrated Modeling Approach
Island Re employs a three-pronged approach that goes beyond standard vendor model outputs:
1. Model Selection and Calibration
We utilize models from leading vendors (e.g., RMS, AIR, Verisk/EQECAT) but tailor their application to your specific portfolio.
- Vendor Model Independence: We don’t rely on a single model. We compare and contrast results across multiple models for the same peril to understand the range of potential outcomes.
- Model Calibration: We calibrate vendor models using your actual historical loss data and our proprietary market observations to ensure the model reflects the unique characteristics of your book of business.
2. Exposure Data Enrichment
The quality of the output is directly dependent on the quality of the input. We help clients enhance their exposure data.
- Data Validation: Rigorous checks for geocoding accuracy, occupancy classification, and construction type to ensure the modeled portfolio accurately reflects the actual risk.
- Secondary Peril Detail: Focusing on detailed exposure data to accurately model secondary perils (e.g., flood, wildfire, and hail), which often drive unexpected losses in major CAT events.
3. Customized Stochastic Analysis
We use stochastic modeling—simulating thousands of potential future events—to develop a full probability distribution of losses.
- Loss Exceedance Curve (LEC): We deliver customized LECs that clearly illustrate the probability of exceeding various loss thresholds, offering a comprehensive view of downside risk.
- Peril Accumulation Analysis: Identifying areas where multiple perils could impact your portfolio simultaneously or sequentially, assessing the total aggregate impact.
- Financial Impact Modeling: Translating modeled gross losses into net losses and capital impacts after applying your current reinsurance structure (deductibles, limits, reinstatements).
đź’ˇ Partnership in Modeling: We don’t just hand over a report. Our modeling team works directly with your actuaries and risk officers to interpret the results and integrate them directly into your capital and pricing strategies.
CAT Modeling for Future-Proofing
Our service includes forward-looking analysis to prepare for evolving risks:
- Climate Change Scenarios: Incorporating emerging scientific consensus to assess how changes in temperature and atmospheric patterns might shift the frequency and severity of certain perils over the long term.
- New Construction/Urban Drift: Analyzing how population shifts and changes in building density affect potential loss aggregation in vulnerable regions.
Ready to Sharpen Your View of Risk?
Engage with Island Re’s Catastrophe Modeling team to refine your understanding of capital requirements and optimize your reinsurance purchasing decisions.