Natural Catastrophe Risk Management and Modelling

List of Contributors and Acknowledgements xiii Foreword xxv 1 Fundamentals 1 Matthew Jones, Kirsten Mitchell-Wallace, Matthew Foote, and John Hillier 1.1 Overview 1 1.2 Catastrophes, Risk Management and Insurance 2 1.3 What Are Catastrophe Models? 5 1.4 Why Do We Need Catastrophe Models? 6 1.5 History of Catastrophe Models 7 1.6 Who Provides and Uses Catastrophe Models? 10 1.7 What Are Catastrophe Models Used For? 11 1.8 Anatomy of a Catastrophe Model 12 1.9 Model Input 19 1.10 Model Output: Metrics and Risk Measures 26 1.11 Statistical Basics for Catastrophe Modelling 38 Notes 44 References 45 2 Applications of Catastrophe Modelling 47 Kirsten Mitchell-Wallace 2.1 Overview 47 2.2 Introduction 48 2.3 Risk Transfer, the Structure of the (Re)insurance Industry and Catastrophe Modelling 49 2.4 Insurance and Reinsurance 52 2.5 Catastrophe Risk Management and Catastrophe Modelling 60 Kirsten Mitchell-Wallace and Matthew Foote 2.6 Underwriting and Pricing 70 Kirsten Mitchell-Wallace and Matthew Jones 2.7 Accumulation, Roll-Up and Capacity Monitoring 97 Claire Crerar and Kirsten Mitchell-Wallace 2.8 Portfolio Management and Optimization 105 Kirsten Mitchell-Wallace and Guillermo Franco 2.9 Event Response and Integration with Claims Team 111 Kirsten Mitchell-Wallace 2.10 Capital Modelling, Management and Dynamic Financial Analysis 116 Junaid Seria 2.11 Regulation and Best Practice in Catastrophe Modelling 121 Junaid Seria, Claire Souch, and Paul Nunn 2.12 Case Study: Catastrophe Modelling for Reinsurance and Retrocession Purchase 137 Juan England 2.13 Government Schemes and Insurance 142 Matthew Eagle 2.14 Catastrophe Models and Applications in the Public Sector 154 Rashmin Gunasekera 2.15 Insurance Linked Securities 158 Arnab Chakrabati 2.16 Effective use of Catastrophe Models 167 Ian Cook, Matthew Jones, Adam Podlaha, and Kirsten Mitchell-Wallace 3 The Perils in Brief 187 John Hillier 3.1 Overview 187 3.2 Tropical Cyclones 194 James Done and Brian Owens 3.3 Extra-Tropical Cyclones 202 Len Shaffrey and Richard Dixon 3.4 Severe Convective Storms 209 Michael Kunz and Peter Geissbuehler 3.5 Inland Flooding 218 Jane Toothill and Rob Lamb 3.6 Shrink-Swell Subsidence 230 John Hillier 3.7 Earthquakes 232 Joanna Faure Walker and Guillaume Pousse 3.8 Mass Movement 245 Tom Dijkstra, Craig Verdon, and John Hillier 3.9 Tsunami 250 Anawat Suppasri and Yo Fukutani 3.10 Volcanoes 254 Sue Loughlin, Rashmin Gunasekera, and John Hillier References 258 4 Building Catastrophe Models 297 Matthew Foote, Kirsten Mitchell-Wallace, Matthew Jones, and John Hillier 4.1 Overview 297 4.2 Introduction 298 4.3 Hazard 301 4.4 Exposure Models and Databases 334 4.5 Vulnerability 341 4.6 Integrating Model Components and the Geographical Framework 367 4.7 The Financial Model 369 4.8 Model Validation 379 4.9 Conclusion 381 Note 381 References 381 5 Developing a View of Risk 389 Matthew Jones 5.1 Overview 389 5.2 Introduction 390 5.3 Governance and Model Change Management 394 5.4 How to Develop a View of Risk 401 5.5 Implementing a View of Risk 442 5.6 Conclusion 452 Notes 452 References 452 6 Summary and the Future 455 John Hillier, Kirsten Mitchell-Wallace, Matthew Jones, and Matthew Foote 6.1 Overview 455 6.2 Key Themes in the Book 455 6.3 The Future: Progress, Challenges and Issues 458 References 464 Glossary 467 Index 495