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What is a catastrophe model? by Oasis.

Terms

  • Coverage: The scope of protection provided under a contract of insurance; any of several risks covered by a policy. It can be defined as buildings, contents, business interruption (BI) or time element coverage, other.
  • A site, comprises a group of structures (locations).
  • A structure is a single location and what is insured. It is associated with one or more insurance coverage.
  • A policy is a specific type of financial structure that applies to a set of locations. Multiple policies can exist under the same account and can apply to the same set of locations.
  • An account comprises a group of policies and locations.
  • A portfolio comprises a number of accounts. Primary financial structures cannot apply at portfolio level, however reinsurance structures can.
  • Exposure: The risk or loss potential an insurance company assumes from its policyholder in exchange for premium.
  • Loss: The occurrence of the event for which insurance pays.
  • Peril: The cause of a possible loss, such as fire, windstorm, theft, explosion, or riot, covered in an insurance policy.
  • Risk: (1) The chance of loss; (2) The insured or property covered by a policy or application.
  • Ground-up loss or GUL or Damage refers to loss with no financial structures applied.
  • Gross loss refers to the loss to the insurer net of primary financial structures.
  • Net loss refers to the loss to the insurer net of primary and reinsurance financial structures.
  • Demand Surge: increase in the cost of repair or replacement of damaged property that may occur following a large-scale disaster when many individuals and organizations vie for a limited supply of labor and materials needed for repair.

Reference:

Curves

  • EP (sometime LEC for loss exceedence curve): Exceedance Probability curve. A probability distribution of losses that will be sustained by an insurance company in any given year.
  • AAL: Average Annual Loss (expected value). Mean loss that occurs in any given year. Mean of year losses over all simulated years.
  • AEP: Aggregate (or Annual) Exceedance Probability. the AEP represents the probability of seeing total annual losses of a particular amount or greater. The loss from all events each year. Sorted year losses over all simulated years.
  • OEP: Occurrence Exceedance Probability. The OEP represents the probability of seeing any single event within a defined period (typically one year) with a particular loss size or greater. The loss from the largest event each year.
  • cdfs: Discrete cumulative distribution functions.
  • ELT: Event Loss Table with samples mean and standard deviation for event. The catastrophe model will then run the entire event set across the portfolio, and calculate a loss from every event in the model to every policy.
  • Return Period: Long term average loss greater than a given loss L in one year will occur at RP year. It represents how confident we are about potential loss. 1 in 250 year return period (1/250 = 0.4%) => 99.6% confident that loss will not exceed this value.
  • TVAR: Tail Value at Risk. Shape of the curve for the most extreme events. If a given loss is exceeded, then the average severity will be TVAR.

Statistics

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