Grossi Flashcards
Aleatory Uncertainty
Inherent Randomness
Epistemic Uncertainty
Due to lack of information
Can be reduced with more data collection
Two Types of Uncertainty in CAT Models
Aleatory
Epistemic
Why CAT Models better than historical data
Infrequent events (1in100)
Climate Change
Mix Shift
Users of CAT Models
Insurers (UW, Risk Transfer)
Reinsurers (Pricing)
Capital Markets (Price CAT bonds)
Regulators (review rates based on models)
Emergency Agencies (FEMA) (Impact of an actual event)
Modules of a CAT Model
Hazard (simulates CAT)
Inventory (Portfolio of properties)
Vulnerability (Simulates damage given simulated CAT)
Loss (Quantifies losses on a property)
Characteristics of an Insurable Risk
- Can identify and quantify frequency/severity
- Can set premiums for each customer
Damage function
x axis: intensity (e.g. wind speed)
y axis: damage ratio (% of insured value)
there is a distribution around each intensity AND a distribution around resulting damage ratio
Exceedance Probability Curve (Definition and Uses)
Probability that a certain level of loss will be surpassed in a given time period
- Size and dist. of potential losses
- Types/locations willing to insure as well as coverage limits and price
- Determine risk transfer need
Types of Exceedance Prob Curves
Occurrence - at least one occ exceeds specified loss
Aggregate - agg during time period exceeds…
Conditional - amount of single event exceeds…
Survival Constraint
Prob that (total loss > total prem + surplus) is less than a specified level
Problems with Using CAT Models
-Regulatory acceptance
-Public acceptance
-Often outside of actuaries’ expertise
-Model-to-model variance
Ways to Add Uncertainty to CAT Models
- Logic Trees - relies on simplifying assumptions. Alt params identified and given weights. Weighted linear combination calculated
- Simulation Methods - model complex processes by assuming dist for each uncertain param
