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Why Don’t Cat Models Work or Do They?. The Role of Models: A View From Both Sides CAS Presentation May 8, 2006 Maria Kovas. Overview. Role of Modeling during the Quiet Years Original Role of Modeling Change in Expectations Return to the basics.

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Why don t cat models work or do they

Why Don’t Cat Models Work or Do They?

The Role of Models: A View From Both Sides

CAS Presentation

May 8, 2006

Maria Kovas


  • Role of Modeling during the

    Quiet Years

  • Original Role of Modeling

  • Change in Expectations

  • Return to the basics

Why don t cat models work or do they 1340850

During the Quiet Natural Catastrophe Years

Leading Role in:

Reinsurance Pricing


Primary Pricing

Business Planning

Post Event Loss Evaluation

Original role diagnostic device
Original Role:Diagnostic Device

  • Distribution of Exposure

    • Identification of High Density Areas

    • Review of Adjacency of Risk in Key Peril Areas

    • Consideration of Redistribution of Exposure

Identification of drivers of risk
Identification of Drivers of Risk

  • Review of PML in Modeled for Modeled Perils

  • Application of Secondary Peril information

    • Modeled

    • Un-Modeled

Consideration of data quality and the impact on the diagnostic process
Consideration of Data Quality and the Impact on the Diagnostic Process

  • Inclusion of additional sublimits and deductibles

  • Identification of more building characteristics

  • Cost Benefit analysis of modifying systems to update the data

Metrics Diagnostic Process

  • Determination of Business/Underwriting Goals

  • Review the current position of the organization

  • Chart the differences and devise options to achieve Goals

  • Periodic review and updates of movement in the process

Underwriting cycle
Underwriting Cycle Diagnostic Process

Catastrophic response
Catastrophic Response Diagnostic Process

  • It is not possible to plan for a Catastrophe

  • It is possible to evaluate event curves

  • Event drills

    • Deployment of claims teams

    • Setting management expectations

Factors contributing to the change in expectations
Factors Contributing to the Change in Expectations: Diagnostic Process

  • Peril Modeling vs. Total losses

  • Second Generation Modelers

  • The Quiet Period

  • Data Issues

  • Updates to methodologies

Peril modeling vs total losses
Peril Modeling vs. Total losses Diagnostic Process

  • Models are based on specific perils

  • Review of actual events to calibrate model outputs

  • Quiet period limited the number events for calibration

  • Actual losses are based on all affected perils

Second generation modelers
Second Generation Modelers Diagnostic Process

First Generation-Professional insurance/broker/reinsurers-recruited to use the models because of aptitude or interest

Second Generation-Professional modelers recruited for technical aptitude and skill in running the models

The quiet period
The Quiet Period Diagnostic Process

  • Modeling became the sole focus of loss estimates

  • Comfort level because losses were within a tolerable variance

Data issues
Data Issues Diagnostic Process

  • Models capable of refinement with additional data points

  • Data capture may be not updated to match the capabilities of the models

  • Valuation issues

  • New financial structures

Updates to methodologies
Updates to methodologies Diagnostic Process

  • New interpretation of historic data

  • Updates to the science used in the models

  • Changes to the methodology

  • Re-calibration of models and vulnerabilities

Re establishing the role of modeling
Re-establishing the Role of Modeling Diagnostic Process

  • Model data as Currency

  • Return to the basics

  • Ensemble Reporting

  • Setting expectations

Model data as currency
Model data as Currency: Diagnostic Process

  • Definition of the data coin

    • A data formatted in such a manner to be shared among industry business interests

    • Standard evaluation of the data coin determine the confidence in the data

    • Confidence in the data leads to rate considerations

Return to basics
Return to Basics Diagnostic Process

  • Underwriting Cycle

  • Review Reporting provided to management

  • Recreate event drills

  • Refresh training

  • Update data capture and interface

Ensemble reporting
Ensemble Reporting Diagnostic Process

  • Create Multiple Views of Exposure

  • Model what is available

  • Identify and communicate gaps

  • Evaluate Secondary Perils

  • Use Mapping

Communicate Diagnostic Process

Anticipate questions

Consider key issues in the firm

Review the diagnosis

Determine if the remedies are cost effective