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Managing Extremes: Forecasting Climate and Capital in a Modelled World. IIS 46 th Annual Seminar, Madrid, June 2010 Rowan Douglas CEO Global Analytics, Willis Re Chairman, Willis Research Network. Managing Extremes in the Modelled World. 1. Loss ($billions). 0. 0. 1000.

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Managing extremes forecasting climate and capital in a modelled world

Managing Extremes: Forecasting Climate and Capital in a Modelled World

IIS 46th Annual Seminar, Madrid, June 2010

Rowan Douglas

CEO Global Analytics, Willis Re

Chairman, Willis Research Network


Managing extremes in the modelled world
Managing Extremes in the Modelled World Modelled World

1

Loss ($billions)

0

0

1000

Return Period (years)


Natural catastrophe and insurer security
Natural Catastrophe and Insurer Security Modelled World

Example insurer: Capital requirement gross of reinsurance

under EU Solvency 2 QIS4

Underwriting

Market

Default

Operational

77%

20%

0%

3%

Risk Based Capital Regulation via Modeling Extremes

3


Models create consume capital
Models Create & Consume Capital Modelled World

Secondary

Post 07

Base

Modifier

UK Flood

SCR

362,306,050

304,898,030

481,258,080

0.0%

-15.8%

32.8%

Underwriting

329,678,240

270,984,530

450,279,460

Catastrophe

300,000,000

234,000,000

429,000,000

CapitalImpact

-57,408,020

118,952,030

all figuresin £

Insurer Responses:

- Master of Models, not servant

- Science to reduce uncertainty

4



The rise of the supermodel
The Rise of the Supermodel Modelled World

  • Historical data is no longer sufficient

  • The industry is entering a new era of extreme climate & weather risk modelling

  • Simulation of planet’s climate system using high resolutions Global Climate Models

  • Improved evaluation of current risk levels

  • Global & regional teleconnections – diversification benefits


Catastrophe management is about time and space
Catastrophe Management is about Time and Space Modelled World

Dispersion,all storms (3-monthly storm transit counts)

Dispersion, most intense storms (exceedance probability=20%)



The second space age
The Second Space Age Modelled World

Flood monitoring (Infoterra)

Global climate monitoring (NCEO)

Haiti Earthquake/AlOS SAR (JAXA)

Earthquake damage assessment (Cambridge)

Sentinel – 3 (ESA)

TerraSAR X (DLR)

Cloudsat - NASA

Building Stock Inventories (Quickbird/Cambridge)


Global earthquake model
Global Earthquake Model Modelled World


Redefining sustainability financial security and repositioning insurance industry
Redefining Sustainability, Financial Security and Repositioning Insurance Industry

  • Sustainability = avoiding or managing undesirable extremes within tolerable parameters

  • Unifying Financial Security, Sustainability and Poverty Reduction under a common philosophy and framework

  • Poverty reduction interventions should perhaps be focussed on helping communities avoid or manage intolerable impacts of extremes

  • As re/insurance enables society to understand, manage and share extreme risks at global and local scales via public and private mechanisms it is being repositioned at the centre of solutions of sustainability


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