PRZOOM - /newswire/ -
London, United Kingdom, 2007/12/17 - Dr Milan Simic, Managing Director of AIR Worldwide Ltd and Dennis Kuzak, Senior Vice President of EQECAT discuss how the art of risk modelling is being advanced by looking at historical trends, recent loss data and future possibilities.
Natural catastrophes can jeopardize the financial well-being of an otherwise stable, profitable company. In 1992 Hurricane Andrew caused more than $16 billion in insured damage and left at least 11 insurers insolvent. Catastrophe modelling helps anticipate the likelihood and severity of potential future catastrophes. We have been talking to Dr Milan Simic, Managing Director of AIR Worldwide Ltd. and Dennis Kuzak, Senior Vice President of EQECAT to find out how the art of risk modelling is being advanced.
Simic describes how developing and advancing the art of risk modelling is an ongoing process; “AIR was first to market with a US hurricane model (1987), severe thunderstorm model (1987), a European windstorm model (1993), terrorism and worker’s compensation models (2002), and life insurance model (2003)”. He continues to talk about how well documented events such as hurricane Katrina, which struck the Gulf Coast in 2004, have helped develop AIR’s storm surge models so that they can better predict peak surge levels resulting from such storms.
Kuzak also discusses how storms such as Katrina provide an unprecedented quality of detailed loss data that can be used to fine-tune risk models. He says, “With a few major events like Katrina, it’s very helpful because there is a lot we can learn from them”. The biggest change for EQECAT since Katrina is that they have developed a high resolution storm surge model that takes into account the profile of the coastline, wind speeds and wave dynamics.
Talking about the future of risk modelling, Kuzak believes that the biggest changes will be evolutionary and not revolutionary. “A lot of people are beginning to think that using purely historical data may not be capturing some of the dynamics that we’ve seen in the atmosphere today”. The industry will by no means ignore the history as this is the benchmark but Kuzak points out, “To make a blind assumption that the future will be identical to the past is not a proven thing to do and one needs to think about the impacts on frequency and severity due to climate change.”
Simic says, “In the aftermath of increased hurricane activity in 2004 and 2005, AIR’s team of eight meteorologists, all of whom hold advanced degrees, has undertaken extensive analyses to further the understanding of the link between elevated sea surface temperatures (SSTs) in the Atlantic and regional landfall frequency. Many forget that every hurricane season is unique; actual landfall activity is a function of complex interactions between genesis location, SSTs and depth of warm water, wind shear and atmospheric steering. An over-reliance on the data from the 2004 and 2005 hurricane seasons leads to an overestimation of projected landfall risk in the near term.”
Risk modelling is a complex business that undergoes continuous development. It requires a detailed understanding of the long-term economic effects that a catastrophe can have on the insured party. The risk modellers are operating in a world which is experiencing an increasingly volatile climate and a key part of their business is to respond to this by continuously developing the way they model risks. There is a random component to all climatic conditions that we will never fully understand but by gathering detailed loss data and analysing historical trends, we will gain a greater understanding of the physical and economic effects that catastrophes have on business.
‘Advancing the art of risk modelling’ is one of the many business critical ILS issues to be discussed at the European ILS and Cat Bond Summit 2008 which takes place on 7-8 February. Dennis Kuzak and Dr Milan Simic will be joined by Peter Nakada, President of RMS Solutions on a panel session which will give you the opportunity to put your questions to the risk modellers about what they are doing to move the industry forwards.
The summit agenda has been written with the input of some of the leading authorities in ILS and will be presented by the most expert line-up of speakers to assemble in Europe to date. Speakers include Rodrigo Araya (Moody’s Investors Service), Luca Albertini (Swiss Re), Michael Pinsel (Sidley Austin), Dr Milan Simic (AIR Worldwide) and Vinay Mistry (Lloyds of London) amongst many others.
Talking about the event, Kuzak said, “It’s a good time for people who are yet to really understand the market. It’s a good time for them to get exposed to what the recent developments have been in the last two years as there’s much more to discuss than there ever has been before”. Kuzak continued, “Early 2008 is a good time for investors, issuers and modellers to evaluate last year’s issuances and for issuers to determine their strategy for employing insurance-linked securities in 2008”.
The summit is completely independent and will make sure issuers, sponsors and investors are given a concise guide to guarantee their success and long-term competitiveness in the ILS and cat bond market. It provides a superb opportunity for you to make contact with new clients and solution providers, and will ensure that you are correctly positioned to benefit from the rapidly expanding ILS market.
The European ILS and Cat Bond Summit 2008 has been organised by ILS Today. We are a new company who provide intelligence, collate news, interview the world’s leading ILS experts and organise senior level business to business events specifically for the ILS community.