What is catastrophe modeling insurance?
What is Catastrophe Modeling? Catastrophe modeling allows insurers and reinsurers, financial institutions, corporations, and public agencies to evaluate and manage natural catastrophe risk from perils ranging from earthquakes and hurricanes to flood and wildfire.
How is AAL calculated?
To calculate the AAL, sum the losses from each year in the catalog / # of years in the catalog. Aggregate AAL = Sum the losses from all events from each year in the catalog. Occurrence AAL = Sum the losses from only the largest event from each year in the catalog.
What is PML in insurance?
Probable maximum loss (PML) is the maximum loss that an insurer would be expected to incur on a policy. Probable maximum loss (PML) is most often associated with insurance policies on property, such as fire insurance or flood insurance.
What is loss exceedance curve?
In simple terms, Loss Exceedance Curves (LEC) provide a graphical representation of the probability that a certain level of loss will be exceeded in a given time period. Historic data for each component is used to determine the probability that an event of a certain magnitude will occur within a future timeframe.
How do you use EP curve tool?
Create EP Curve
- Choose Create > EP Curve Tool and select the options.
- In the options, select 1 Linear or 3 Cubic. Linear is used for straight lines and Cubic creates rounded shapes.
- Click multiple times to define your shape.
- To close the curve, select the curve and choose Edit Curves > Open/Close Curves.
What is an insurance cat analyst?
Insurers and risk managers use cat modeling to assess the risk in a portfolio of exposures. This might help guide an insurer’s underwriting strategy or help them decide how much reinsurance to purchase. Reinsurers and reinsurance brokers use cat modeling in the pricing and structuring of reinsurance treaties.
What is occurrence exceedance probability?
Occurrence Exceedance Probability (OEP) The OEP is the probability that at least one loss exceeds the specified loss amount. Aggregate Exceedance Probability (AEP) The AEP is the probability that the sum of all losses during a given period exceeds some amount.
How is PML calculated in fire insurance?
Multiply the property valuation by the highest expected loss percentage to calculate the probable maximum loss. For example, if the property valuation is $500,000 and you determine that fire risk mitigation reduces expected losses by 20 percent, probable maximum loss for a fire is $500,000 multiplied by .
What is EML and PML?
Generally, the Estimated Maximum Loss (EML) or Probable Maximum Loss (PML) is estimated by dividing the risk into complexes.
How to calculate the average annual loss ( AAL )?
To calculate the AAL, sum the losses from each year in the catalog / # of years in the catalog. Aggregate AAL = Sum the losses from all events from each year in the catalog. Occurrence AAL = Sum the losses from only the largest event from each year in the catalog.
What’s the difference between AAL and two year return period?
While AAL is the mean loss of the distribution, the two-year return period loss is the median, meaning you should expect to see lower losses in half of the years and higher losses in the other half. Unlike for the one-year return period loss, it is possible for the two-year return period loss to be higher than the AAL.
How is the glossary of insurance terms developed?
New terms will be added to the glossary over time. The definitions in this glossary are developed by the NAIC Research and Actuarial Department staff based on various insurance references. These definitions represent a common or general use of the term.
What does aggregate AAL mean in catastrophe modeling?
Aggregate AAL = Sum the losses from all events from each year in the catalog. Occurrence AAL = Sum the losses from only the largest event from each year in the catalog. It tells you the long term average for the largest loss causing event in each simulated year.