04 January 2017
LMA aims to clarify cat model uncertainties
The Lloyd’s Market Association (LMA) has published a new guide on catastrophe modelling in response to the increasing use and complexity of today’s cat models. ‘Understanding Uncertainty in Catastrophe Modelling for Non-Catastrophe Modellers’ follows guidance published by the LMA’s Exposure Management Working Group in 2013.
The new guide focuses on uncertainty in catastrophe modelling and is aimed at anyone who relies upon cat models but does not have a detailed understanding of the uncertainty contained within them.
The guide explains the five main reasons for uncertainty within cat models; these are:
- non-modelled losses: which can result from regions or perils not included in the modelling assessment, risks that are not considered by a model, or missing exposures
- exposure data: the accuracy of the cat model is reliant on the quality of its input data
- event frequency: historical data on catastrophe is limited and is not always a reliable guide to what events may occur in the future
- risk vulnerability: catastrophe risks may have several different characteristics, such as wind damage and flood, insured risks may have different vulnerabilities to these hazards
- financial calculations: translating risk and frequency into possible claims value and volume.
Ken Curtis, Director, Finance & Risk at the LMA said: “As our reliance on and the sophistication of catastrophe models grows, so does the level of uncertainty inherent in the models. Few outside the cat modelling industry are fully equipped to recognise this, and the consequences it has on assessing and pricing risk. This guide provides an invaluable tool for LMA members and the insurance market generally in understanding this uncertainty.”
The LMA guide ‘Understanding Uncertainty in Catastrophe Modelling for Non-Catastrophe Modellers’ is available from the LMA website www.lmalloyds.com/cmg.
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Notes to Editors
For further information please contact:
James Milne, Communications Manager
Lloyd’s Market Association
T 0207 327 8405
About the Lloyd’s Market Association (LMA)
Formed in 2001 and located in the heart of the Lloyd’s Building in the City of London, the Lloyd's Market Association represents the interests of the Lloyd’s underwriting community. All underwriting businesses at Lloyd’s are members, together managing gross premium income of around £27billion per annum. For more information visit: www.lmalloyds.com.