Risk models are more sophisticated than ever—and so is the complexity of risks that the modelling agencies are being asked to apply them to. As such, a paradigm shift is required in the understanding and use of catastrophe models.
For more than 20 years, catastrophe risk modellers have provided the insurance and reinsurance industry with valuable tools to quantify risk, and the market is more robust today as a result. Re/ insurers—insurers and reinsurers—have steadily integrated model-based analytics into their business processes, with many model-savvy industry leaders raising the bar on the appropriate use and application of models to support core business decisions.
Despite this notable progress, we now fi nd ourselves at an inflection point in the development, dialogue, and use of catastrophe models. In 2011, the global re/insurance industry suffered $100 billion of worldwide catastrophe losses, stemming from earthquakes in Japan and New Zealand, floods in Thailand, and severe tornado and weather events in the US. On top of record-breaking losses, several of the events and their consequences came as a surprise to modellers and re/insurers alike.
Additionally, RMS delivered major changes to our models last year, including the introduction of new models for North Atlantic hurricane and Europe windstorm. They suggested a significant increase in the view of risk for most portfolios, with the magnitude of change surprising many in the industry.
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