Catastrophe Modelling for Mutuals – New Report from Willis Re

Wednesday, 31 August 2011

Insurance practitioners whose role is to defend their organisation’s financial capital need to be aware of the limitations as well as the potential of catastrophe modelling says Willis Re, ICMIF Supporting Member for the Reinsurance Broker category, in a special report on ‘Catastrophe Modelling for Mutuals’ prepared exclusively for ICMIF members.

With concentrated and homogenous exposures, and policyholder capital always hard to replenish, especially in the current economic climate, mutuals and cooperatives in particular can benefit from an enhanced understanding of their susceptibility to catastrophe when building, interpreting and making critical financial decisions with the aid of catastrophe models.

Catastrophe modeling (commonly known as “cat modeling”) is the process of using computer-assisted calculations to estimate the losses that may be sustained due to a catastrophic event such as a hurricane or earthquake. Catastrophe models are now fairly widespread and their use is increasingly mandated by regulators, rating agencies and reinsurers. The report looks at the development and evolution of catastrophe modelling in the insurance industry, the types of perils now covered by the models, and considers how they have performed recently.

Recent events such as the earthquakes in Japan, Chile and New Zealand and flooding in Australia are used to illustrate the performance of the models. The report highlights a number of lessons to be learned with particular relevance for mutuals and cooperatives, and looks at how future challenges might be met. In particular the report highlights some of the common pitfalls which can arise when interpreting or analysing model output, and suggests several approaches that help mitigate the risks of over-reliance on models.

The report was prepared by Brian Owens, Executive Director at Willis Re Analytics, and Robin Swindell, Executive Vice President. Brian is based in London, focusing primarily on catastrophe model interpretation and Robin also works in London in the office of the Willis Re North America team.

To download or read the report you must work for an ICMIF member organisation and you will need to register with and log in to the ICMIF online community. Once you are logged in the report will appear below.


ICMIF Members can [download id="139"]