RAA CATASTROPHE MODELING CONFERENCE

Advance Modeling: Earthquake and Wind (Track: Science)

Less-heard of Imprecisions in Catastrophe Models

Federico Waisman, PhD

Head of Analytics, Ariel Re 12 February 2014

Agenda
Objective of this break-out session Stimulate ideas Examples of model imprecisions Geo-coding Geo-hazard parameter estimation Hazard intensity estimation Modeling Single Risks The less-heard sources of model imprecisions: Financial Components Observations/Questions

Federico Waisman, Advanced Modeling, RAA Catastrophe Modeling Conference, February 2014

Methodology: Coverage Summary

Recall Mark Boves Cat Modeling 101 section Basic Building Blocks

Geocoding Intensity Calculation Financial Component

Federico Waisman, Advanced Modeling, RAA Catastrophe Modeling Conference, February 2014

Geocoding Imprecision
Ariel Re offices in London: 1 King Street, London EC2V 8AU, UK Public Geocoder 1 51.514278,-0.092289 Public Geocoder 2 51.514181,-0.092091 Public Geocoder 3 51.513928136299846, -0.09208895266056061 (acknowledged missing address)
Picture from Google
Federico Waisman, Advanced Modeling, RAA Catastrophe Modeling Conference, February 2014 4

Geo-hazard Parameters & Intensity Estimation Imprecision

Ariel Re offices in London: 1 King Street, London EC2V 8AU, UK User-provided Latitude/Longitude is best Hazard in Cat Models stored at fix grid points Geo-hazard information (soil type, liquefaction, surface roughness, etc) At fixed grids? Based on user Lat/Lon? Know your model(s) Know your model(s) resolution
Picture from Google
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Hazard Grid 1 Hazard Grid 3

Hazard Grid 2

Hazard Grid 4

Federico Waisman, Advanced Modeling, RAA Catastrophe Modeling Conference, February 2014

Geo-hazard Parameters & Intensity Estimation Imprecision (cont.)

Ariel Re offices in London: 1 King Street, London EC2V 8AU, UK Does YOUR tool picks up the geo-hazard info from your provided lat/lon or the nearest grid point? Does YOUR tool picks up the hazard intensity from your provided lat/lon or the nearest grid point? Know your model(s)

? ?

Picture from Google

Federico Waisman, Advanced Modeling, RAA Catastrophe Modeling Conference, February 2014 6

Geo-hazard Parameters & Intensity Estimation Imprecision (continue)

Cat Models have higher resolutions over densily populated areas Grids often are very detailed around cities, and coarser outside Population weighted averages Industrial risks in remote areas: Bad geocoding if not Lat/Lon Geo-hazard info imprecision Hazard intensity imprecision

Pictures from Google

Federico Waisman, Advanced Modeling, RAA Catastrophe Modeling Conference, February 2014

Geo-hazard Resolution
Single site, Power Plant, Multiple buildings Peril: Tornado Latitude/Longitude Loss? You can workaround Know your model(s) F1 F3

Picture from Google

Federico Waisman, Advanced Modeling, RAA Catastrophe Modeling Conference, February 2014 8

Financial Component
Historically, we had focus on model differences with respect to Even Frequencies, Hazard and Vulnerability At RAA Cat Modeling Conference, never done a Model Comparison just on Financial Component Here and there, we have shown some comparisons, but never a full blown comparative analysis Neither here, sorry. Financial Component. Its deductibles, limits.thats simple stuff There could not be that much differences between the models Lets go back to the 2007 RAA Cat Conference.

Federico Waisman, Advanced Modeling, RAA Catastrophe Modeling Conference, February 2014

Financial Component 2007 RAA Cat Conference

Lat/Lon portfolios Building, Content, BI HU, 2% deductible EQ, 10% deductible 2007 models Differences still persist ISCM portfolio
Model Comparison by Federico Waisman, RAA Cat Conference, February 2007, Tampa, FL
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Financial Component General Overview

Portfolio Account Company Policy/Layer Location/Site Coverage Building Location 1 Policy 1 Location Content BI Content BI Policy Policy ! Losses Policy " Location 1 Location ! Location # Building

Portfolio

Federico Waisman, Advanced Modeling, RAA Catastrophe Modeling Conference, February 2014

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Financial Component Coverage Losses

Recall Marks Cat Modeling 101 damage calculation Combination of hazard intensity and vulnerability curves give you Coverage Loss Damage Ratio
100%

Conditional damage PDF given i

d(i)
Damage PDF

Type 1

d d

d(i)

Type 2

0%

Hazard Intensity
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Federico Waisman, Advanced Modeling, RAA Catastrophe Modeling Conference, February 2014

Financial Component Calculation Overview

Look for: Fix distributions Simple Correlations Know your model(s) Policy 1

Correlation Location 1

Building Content BI

Portfolio Policy Policy ! Policy "

Location

Content BI Correlation

Location ! Location #

Federico Waisman, Advanced Modeling, RAA Catastrophe Modeling Conference, February 2014

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Financial Component Effects of Correlation

X~LogN(mx, sx) Y~LogN(my, sy) Z=X+Y X,Y iid, X,Y correlated Correlation in models Peril Distance Construction type etc? How does your model handle correlation? Know your model(s)
0.5 Correlated Independent

0.4 probability

0.3

0.2

0.1

5 6 Loss ($m)

10

Note$ correlation structure and distri%ution c&oice could ma'e t&e situation t&e opposite(
Federico Waisman, Advance Modeling, RAA Catastrophe Modeling Conference, February 2014 14

Conclusions/Observations
Even with the perfect input information, cat models are imprecise How your model does certain calculations affects your results: Geo-hazard parameters Intensity estimation calculation Hazard and Vulnerabilities are important but dont ignore the Financial Component Highly nonlinear sum of correlated random variables tool It involves complex calculations, contrary to most user perceptions Impact across ALL perils: earthquake, hurricane, flood, wildfires, etc. Topic for next years model comparison? Cant emphasize enough: Know your model(s) Know your model(s)

Federico Waisman, Advanced Modeling, RAA Catastrophe Modeling Conference, February 2014

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