Casualty modelling
AN ALTERNATIVE APPROACH
Many casualty lines have remained stubbornly resistant to the efforts of the industry to model them. But as interest in this space grows with the size of the potential liabilities, new efforts are being made to better understand and quantify these risks, as Intelligent Insurer reports.
A
s risk becomes increasingly commoditised in the property- catastrophe lines and rates soften, competition in the casualty sector is heating up.
Many reinsurers are increasing their presence in the casualty
certain risks, previously seen as too expensive or too tricky to re/insure.
than property-catastrophe ones, however. Some liabilities shift with the Others lack the depth of historical data that re/insurers are so used to analysing and relying on.
“The modelling of casualty catastrophe risk is challenging due to the lack of historical data. Past mass tort experience is typically not replicable as there are not typical mass torts. These actions have included exposure to asbestos, product says Stacey Gotham, senior actuarial consultant at AIR Worldwide.
J Douglas Fullam, manager, life modelling, at AIR Worldwide, adds: “The challenges associated with the impact of terrorism are similar.
22 | INTELLIGENT INSURER | Spring 2015
Therefore, determining appropriate assumptions about frequency and severity distributions becomes very challenging due to the sheer size of events which have caused large losses and the relationship to the ever-
LONG TAIL UNCERTAINTY The long tail nature of these events, which can span many years and even decades, makes these exposures overall harder to handle.
damages are well understood after several months of analysis and on-site says Chris Folkman, senior director, product management at RMS.
Tom Larsen, senior vice president of CoreLogic EQECAT, agrees. “While catastrophe models for an earthquake are developed based upon historical event injury rates and historical insurer losses trended with the latest pay-out trends, catastrophe model results for disability insurance are
Gotham and Fullam at AIR Worldwide explain that traditional catastrophe models also have the advantage of pulling historic information
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