Kirsten Mitchell-Wallace, PhD is EMEA Regional Head of Catastrophe Management at SCOR, Zürich, Switzerland

Matthew Jones, PhD is Director at Cat Risk Intelligence, UK

John Hillier, PhD is Senior Lecturer in Physical Geography at Loughborough University, Loughborough, UK

Matthew Foote is Group Head of Exposure Management at Argo Group International Holdings, London, UK

List of Contributors and Acknowledgements xiii

Foreword xxv

1 Fundamentals 1
Matthew Jones, Kirsten Mitchell-Wallace, Matthew Foote, and John Hillier

1.1 Overview 1

1.2 Catastrophes, Risk Management and Insurance 2

1.3 What Are Catastrophe Models? 5

1.4 Why Do We Need Catastrophe Models? 6

1.5 History of Catastrophe Models 7

1.6 Who Provides and Uses Catastrophe Models? 10

1.7 What Are Catastrophe Models Used For? 11

1.8 Anatomy of a Catastrophe Model 12

1.9 Model Input 19

1.10 Model Output: Metrics and Risk Measures 26

1.11 Statistical Basics for Catastrophe Modelling 38

Notes 44

References 45

2 Applications of Catastrophe Modelling 47
Kirsten Mitchell-Wallace

2.1 Overview 47

2.2 Introduction 48

2.3 Risk Transfer, the Structure of the (Re)insurance Industry and Catastrophe Modelling 49

2.4 Insurance and Reinsurance 52

2.5 Catastrophe Risk Management and Catastrophe Modelling 60
Kirsten Mitchell-Wallace and Matthew Foote

2.6 Underwriting and Pricing 70
Kirsten Mitchell-Wallace and Matthew Jones

2.7 Accumulation, Roll-Up and Capacity Monitoring 97
Claire Crerar and Kirsten Mitchell-Wallace

2.8 Portfolio Management and Optimization 105
Kirsten Mitchell-Wallace and Guillermo Franco

2.9 Event Response and Integration with Claims Team 111
Kirsten Mitchell-Wallace

2.10 Capital Modelling, Management and Dynamic Financial Analysis 116
Junaid Seria

2.11 Regulation and Best Practice in Catastrophe Modelling 121
Junaid Seria, Claire Souch, and Paul Nunn

2.12 Case Study: Catastrophe Modelling for Reinsurance and Retrocession Purchase 137
Juan England

2.13 Government Schemes and Insurance 142
Matthew Eagle

2.14 Catastrophe Models and Applications in the Public Sector 154
Rashmin Gunasekera

2.15 Insurance Linked Securities 158
Arnab Chakrabati

2.16 Effective use of Catastrophe Models 167
Ian Cook, Matthew Jones, Adam Podlaha, and Kirsten Mitchell-Wallace

3 The Perils in Brief 187
John Hillier

3.1 Overview 187

3.2 Tropical Cyclones 194
James Done and Brian Owens

3.3 Extra-Tropical Cyclones 202
Len Shaffrey and Richard Dixon

3.4 Severe Convective Storms 209
Michael Kunz and Peter Geissbuehler

3.5 Inland Flooding 218
Jane Toothill and Rob Lamb

3.6 Shrink-Swell Subsidence 230
John Hillier

3.7 Earthquakes 232
Joanna Faure Walker and Guillaume Pousse

3.8 Mass Movement 245
Tom Dijkstra, Craig Verdon, and John Hillier

3.9 Tsunami 250
Anawat Suppasri and Yo Fukutani

3.10 Volcanoes 254
Sue Loughlin, Rashmin Gunasekera, and John Hillier

References 258

4 Building Catastrophe Models 297
Matthew Foote, Kirsten Mitchell-Wallace, Matthew Jones, and John Hillier

4.1 Overview 297

4.2 Introduction 298

4.3 Hazard 301

4.4 Exposure Models and Databases 334

4.5 Vulnerability 341

4.6 Integrating Model Components and the Geographical Framework 367

4.7 The Financial Model 369

4.8 Model Validation 379

4.9 Conclusion 381

Note 381

References 381

5 Developing a View of Risk 389
Matthew Jones

5.1 Overview 389

5.2 Introduction 390

5.3 Governance and Model Change Management 394

5.4 How to Develop a View of Risk 401

5.5 Implementing a View of Risk 442

5.6 Conclusion 452

Notes 452

References 452

6 Summary and the Future 455
John Hillier, Kirsten Mitchell-Wallace, Matthew Jones, and Matthew Foote

6.1 Overview 455

6.2 Key Themes in the Book 455

6.3 The Future: Progress, Challenges and Issues 458

References 464

Glossary 467

Index 495