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Unbiased Risk Clarity

Measuring risk is a key component for every CAT model. WorldCATenterprise (WCe) uses an advanced model methodology to provide unmatched risk clarity, allowing the users to measure risk with greater precision and confidence.

• "High resolution" stochastic event sets enable unique "risk clarity" for pricing and PML measures, even for demanding site and policy underwriting applications.

A high resolution grid enables better risk discrimination, reducing the risk of being adversely selected against, ensuring that model results are representative of true risk.  The high resolution grid can be used to account for variations in risk exposure caused by site-specific factors (see figure).  The high resolution grid can also be used to account for variations in insurance conditions, such as higher deductibles or attachment points (see figure).  Wce uses a very large sampling of stochastic random events to avoid bias due to incomplete event sets and enable a reliable high resolution risk analysis.  For example, the EQECAT US models rely on over 500,000 hurricanes, 2.2 million earthquake events, 800,000 tornado/hail events and 20,000 winter storm events. The net result is a highly accurate and unbiased estimate of the probable loss at each site.

• Rigorous statistical methodologies capture uncertainty in both the hazard intensity and damage estimates, so that volatility can be included in the decision making and pricing processes.

WCe models successfully account for two types of uncertainty that have a profound effect on PML calculations: hazard and damage uncertainty. By successfully accounting for both hazard and damage uncertainty at every stage of the modeling process, WCe avoids intrinsic model bias and enables a more accurate calculation of the portfolio risk.

• Vulnerability functions are rooted in billions of dollars of claims data from numerous natural hazard events and insurers worldwide. This provides strong validation for our data.

EQECAT is part of ABS Group, a worldwide property and process risk consulting engineering corporation.  The vulnerability functions used for calculating probable loss are based on extensive field investigations of over 100 earthquake and windstorm events and use billions of dollars of actual insurance claim data. These functions also take into account variables like building materials and structural systems, building height, age and occupancy type. When structure-specific data is not available, default functions are used that reflect country-specific data on building codes and regional inventories that provide the best representation of risk for the available information.

• A financial module that uses 150,000 years of dynamic simulations to enable more accurate annual aggregate results, enables second and third event treaty functionality and better clarity at the tails of the loss distribution.