Having a deep understanding of your risk is important in today’s economic environment. Indeed, it is demanded by boards of directors, rating agencies, and regulators. Catastrophe models enable insurers to answer important questions about their risk profile, such as: What are my exposures in peak accumulation zones—on a gross and net basis? How much total loss could I experience in one year? How do my exposures and modeled losses compare to my competitors’ or the industry’s? Which peril or region is driving loss in my multi-peril portfolio? What is the impact of changing underwriting guidelines? How can I become more competitive?
AIR Models Based on the Best Science
Insurers expect and pay for the best science from AIR models. We also understand that the impact of model changes on business decisions can be significant. A critical decision for the catastrophe modeler is when to incorporate new scientific theory. If it is incorporated before a scientific consensus is reached, the updated model may result in unnecessary instability in the loss estimates. On the other hand, if new findings are incorporated after the wider scientific community comes to a general agreement, the modeled losses may change—perhaps significantly—but the change can be justified.
The Benefits of In-House Modeling
Insurers who use AIR catastrophe models in house have more control over their risk management processes. They have the tools at hand to develop their own view of risk rather than relying on intermediaries. Data from AM Best reveals that these companies have lower loss ratios and, ultimately, more profit. With models in house, they have the tools to effectively test the impact of alternative policy conditions, risk transfer strategies, underwriting guidelines, risk mitigation decisions, and portfolio optimization—and get the answers they need when they need them. They also have the tools to become more competitive by improving surplus management, evaluating mergers and acquisitions, and increasing pricing flexibility.
That’s why the only time AIR undertakes model change is after new science is vetted, new data become available, and there is an opportunity to improve modeled results in demonstrable ways. Our models are based on the latest scientific research, engineering expertise, and local knowledge. Each is extensively validated component by component from the ground up—and from the top down against damage and claims data to ensure that model results make sense.
AIR software gives companies more than just reliable estimates of potential loss. It enables insurers to model large commercial policies with complex contract terms and deductible assumptions. It enables users to monitor their concentrations of both modeled and non-modeled exposures by accumulating not just risk counts and replacement values, but also exposed limits after accounting for policy terms including deductibles, layers, limits and reinsurance treaties. This can help organizations identify accumulations of risk and decide where to grow or retract business.
Comprehensive Consulting Services
AIR’s skilled consultants—among them actuaries, engineers, mathematicians, statisticians, and financial analysts—work one-on-one with insurers to ensure they understand how detailed catastrophe loss information can best be used to inform decisions about pricing, underwriting, risk transfer, and portfolio optimization.
Measured Approach to Hurricane Risk
There are severe limitations in forecasting sea surface temperatures (SSTs), and so called medium-term models based on SST forecasts carry too much uncertainty to be of real value. AIR’s warm sea surface temperature (WSST) catalog is conditioned on the frequencies and intensities (by coastal region) of tropical cyclone activity during those years since 1900 when SSTs have been higher than the long-term average. AIR’s WSST catalog does not attempt to forecast either SSTs or hurricane activity. Rather, it provides a long-term and stable view of the risk from landfalling hurricanes, while avoiding the inevitable pitfalls of near- and medium-term forecasting.
Our mission is to help our clients do their jobs better. We achieve that goal by offering models of the highest scientific caliber, powerful and intuitive software, the broadest range of consulting services, and responsive and knowledgeable client support.