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EQECAT Issues First Probabilistic Catastrophe Model for U.S. Winter Storms
More Than 12,000 Stochastic Events Included
Oakland, CA
December 8 , 2004
EQECAT, Inc., the leading authority on extreme risk modeling announced today the release of the first Winter Storm Model to quantify and manage insurance exposures associated with snow and ice damage in the continental United States. John P. Woods Co., Inc. (JPW), a prominent reinsurance intermediary, and subsidiary of Arthur J. Gallagher & Co. collaborated on the model development.
The EQECAT Winter Storm Model is designed to enable portfolio analyses for residential, commercial and industrial risk types. It covers a wide range of winter storm events, including blizzards, ice storms, Eastern Rockies, Northeast (Nor’easter), and Pacific Coast winter storms, and a variety of damages, including roof damage , pipe freeze, and ice damage.
Winter Storms Cause Multi-Billion Dollar Losses
“Winter storms have been causing annual losses in the lower layers or below the catastrophe reinsurance cover retentions of most companies, causing billions of dollars in losses to the insurance industry,” said Lou Estrema, s enior vice president, JPW.
“While individually these losses don’t generally impair a company’s ability to write business, they certainly erode their property loss ratios,” he said.
Historical industry loss data, such as that provided by Property Claims Service (PCS) , show that winter freeze, snow and ice damage has accounted for approximately 8.5 percent of the total accumulated U.S. catastrophe losses since 1949.
“We believe that industry winter storm losses may be understated by as much as a factor or two due to under-reporting. The reason for this is that typically many of the claims come in long after industry sources have tallied losses for the particular storm. This is among the reasons why we believe the industry needed a model to better manage the exposure, and to make more informed risk transfer choices,” said Mr. Estrema.
EQECAT Model Based Upon Data Starting From 1961
The EQECAT model is based on detailed historical storm data, starting from 1961 and continuing through 2003 . All the data was collected from the National Weather Service through hourly weather observations and local climatological reports. The vulnerability functions for the model were developed using 20 years of claims data from several insurance companies, and PCS historical data.
The EQECAT Probabilistic Winter Storm model reveals that insured losses could exceed $5 billion should there be a recurrence of a variation of the March 1978 storm, which affected a significant part of the East Coast.
JPW Cites EQECAT’s Technological Leadership, Innovation
JPW selected EQECAT to develop a probabilistic model that would help insurers to quantify and manage their exposure to these losses because “we believe that they are the technology leader and the innovator in natural hazard modeling,” Mr. Estrema said. “ In addition, we have confidence in EQECAT’s ability to deliver the capability we need.”
“We have tested the model using data provided by various clients whose reinsurance programs have been significantly impacted by historical losses. We found the results to correlate very well with the actual experience, giving us a greater comfort level with the model’s capabilities,” he said.
“EQECAT was pleased to work with John P. Woods Co. on this project because it enabled EQECAT to continue expanding its pioneering catastrophe model solutions, which provide insurance industry professionals with the reliable tools to accurately price and manage risk from various natural catastrophes,” said Richard Clinton, president of EQECAT.
“The Winter Storm model is the latest addition to EQECAT’s WORLDCATenterprise™ product, which offers a suite of catastrophe management tools for 88 countries, more than any other modeler,” he said.
EQECAT Winter Storm Model Uses More Than 12,000 Stochastic Events
“Through the use of sophisticated stochastic simulation and stratified sampling, we have captured the full complexity and variability of winter storms,” said Dr. Mahmoud Khater, EQECAT’s chief technology officer.
“Winter storms are complex phenomena, which depend on a large number of parameters, such as snowfall amount, ice accretion, wind speed, and pre-existing snow depth, to compute the potential damage and insured losses. The EQECAT Winter Storm model takes into account the full range of parameters and has more than 12,000 stochastic events, producing very credible results,” Dr. Khater said.
EQECAT Serves Global Insurance, Business, Financial Services
EQECAT, an affiliate of ABSG Consulting Inc., serves the global property and casualty insurance industry, major multinational corporations and financial institutions. EQECAT is known as the technical leader and innovator in the development of analysis tools and methodologies to quantify insurers and major corporations’ exposure to natural and manmade catastrophic risk.
It is a recognized industry thought-leader providing the expertise and real-world tested tools to turn risk-theory into innovative actions and solutions to effectively manage extreme-risk worldwide. EQECAT's flagship product, WORLDCATenterprise is a multi-user platform for evaluating insured risks for many natural catastrophe perils in 88 countries.
EQECAT was founded in 1994 and is headquartered in Oakland, California. ABSG Consulting Inc., headquartered in Houston, Texas, has risk-management revenues of more than $140 million, and more than 1,000 employees worldwide.
John P. Woods Co., Inc. Offers Wide Range Of Products
Since 1978, JPW has offered clients a full range of property/casualty and life, accident and health treaty reinsurance products. JPW represents more than 100 clients that cede in excess of $1 billion in property/casualty and life, accident and health premiums. JPW is a subsidiary of Arthur J. Gallagher & Co., the fourth largest insurance broker in the world.
For more information, contact:
Thomas Larsen
EQECAT, Inc.
1-510-817-3100 | tlarsen@absconsulting.com
Eric R. Samansky
The Samansky Group
1-516-319-0858 | eric@samanskygroup.com |
