Reinsurance Tropical Cyclone Model—Goals, Achievements, Questions

Catastrophe reinsurance provides protection against the impact of financial losses caused by natural catastrophes at a fair price for an insurer's book of business. Therefore, the reinsurance industry needs models to calculate this price rapidly and accurately for any clients' book of business. Academic research is translated into quantitative probabilistic models for pricing business. The aim is to identify the most effective compromise between model detail and reliability.

Many of the existing model methodologies currently used by reinsurers, are based solely on historical land-falling data (NWS38). This more traditional approach could not adequately assess the impact of storms that make multiple landfalls. Hence a new hazard methodology was required. PartnerRe's approach simulates the entire life cycle of a tropical cyclone, including its development and subsequent movements. This enables PartnerRe to use much more data, i.e. data for all tropical cyclones, and not only of those that hit land. In addition, the method allows for inclusion of more sophisticated features, such as climate change scenarios and La Niña/El Niño effects.

The model generates windfields for both historical and synthetic storms, which are then translated into insured loss amounts. PartnerRe's model takes into account the topography, roughness of the terrain profile, as well as different vulnerability functions for the insured objects. Based on PartnerRe's hurricane model, an insured market loss for the US East Coast runs at US$ 42 billion with a return period of 100 years.