New European windstorm model from Impact Forecasting offers alternative view on this peak zone peril

Insurers can incorporate their own claims data and gain insights on clustering

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Mar 05, 2014, 11:43 ET

LONDON, March 5, 2014 /PRNewswire/ -- Impact Forecasting, the catastrophe model development center of excellence at Aon Benfield, has launched its new European windstorm model. Aon Benfield is the global reinsurance intermediary and capital advisor of Aon plc (NYSE:AON). After three years in development, the model offers an alternative view on this peak zone peril and enables insurers to gain a better understanding of the possible losses, including the effects of storm clustering.

Windstorm is the number one peril in Europe, causing the highest annual insured losses. The potential for windstorm footprints to extend into multiple countries can result in high aggregate losses for insurers with multi-country portfolios and shows the need to model this hazard consistently on a Europe-wide basis. For example, Xynthia, which caused EUR 1.6b in insured losses, impacted eight countries and the model suggests the potential for more extreme events many multiples larger.

In addition, Solvency II is emphasising the need for a deeper understanding of the model solutions that help drive insurers' views of risk. For some firms this increases a desire to own a catastrophe model in-house. Impact Forecasting's suite of models – including the new European windstorm tool – can provide a fully transparent and documented approach that delivers on this requirement.

The windstorm model currently covers Belgium, France, Denmark, Germany, Ireland, Luxemburg, Netherlands and the UK. The development involved three years of collaborative research with the department of meteorology and climatology at the University of Cologne, an Aon Benfield Research partner, to incorporate the latest peer reviewed scientific research into the model.

Differentiating features of the model and benefits for insurers include:

Incorporating the latest insights from climate research to better understand the maximum possible loss from a single windstorm event or a clustering of events on an annual basis that may impact reinsurance protection under the treaty.
Allows customised modelling based on an individual insurer's portfolio, for example using insurance claims to modify the damage component of the model. This achieves a better representation of the insurer's risk.
New events can be added to the model to forecast losses for ongoing or hypothetical events.

Adam Podlaha, global head of Impact Forecasting, said: "Windstorm is the most damaging peril in Europe so bringing an additional view on the risk – and new insight into the financial impact of clustering – is invaluable to the market. In line with the proposed Solvency II regulatory framework, Impact Forecasting's transparent approach to catastrophe modelling means insurers can develop and truly own their view of risk. The model runs on our open architecture modelling platform ELEMENTS which, in response to insurers' evolving needs, delivers the capabilities to customise individual model components or quantify uncertainty."

Alexandros Georgiadis, climatologist and catastrophe model developer at Impact Forecasting, explained: "Due to short historical records and the comparatively smaller number of annual significant European windstorms – 2.5 per year on long term average – it remains challenging to quantify the frequency of historical extreme events, and thus of seasonal clustering, from observations alone. In order to solve this, a large set of global climate models (GCM) simulations, run with set ups consistent with current climate conditions, are explored to strongly enlarge the data sample to over 4600 years and thus to provide better estimates of event-based and cumulative losses. Our approach preserves the clustering as simulated by the GCM, thus enabling a more accurate and physically-based definition of loss clustering and frequency."

The next phase of model development will see the addition of Central Europe and Scandinavia. The windstorm model builds on Impact Forecasting's European model suite including flood and earthquake.

IMAGE: Impact Forecasting generates footprints of recent events which are then used for early insurance loss estimates, back-testing and validation. The map shows relative gross market loss (ratio of loss to insured value) of storm Christian per postal code (October, 2013). Download: http://bit.ly/1a7aAgL

About Impact Forecasting® LLC
Impact Forecasting is a catastrophe modeling center of excellence whose seismologists, meteorologists, engineers, mathematicians, finance risk management and insurance professionals analyze the financial implications of natural and man-made catastrophes around the world. Impact Forecasting's experts develop software tools and models that help clients understand risks from hurricanes, tornadoes, earthquakes, wildfires and terrorist attacks on property, casualty and crop insurers and reinsurers. To find out more about Impact Forecasting® LLC, visit www.impactforecasting.com.

About Aon Benfield
Aon Benfield, a division of Aon plc, is the world's leading reinsurance intermediary and full-service capital advisor. We empower our clients to better understand, manage and transfer risk through innovative solutions and personalized access to all forms of global reinsurance capital across treaty, facultative and capital markets. As a trusted advocate, we deliver a local reach to the world's markets, an unparalleled investment in innovative analytics, including catastrophe management, actuarial and rating agency advisory. Through our professionals' expertise and experience, we advise clients in making optimal capital choices that will empower results and improve operational effectiveness for their business. With more than 80 offices in 50 countries, our worldwide client base has access to the broadest portfolio of integrated capital solutions and services. To learn how Aon Benfield helps empower results, please visit aonbenfield.com.

About Aon
Aon plc (NYSE:AON) is the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 66,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise. Aon has been named repeatedly as the world's best broker, best insurance intermediary, reinsurance intermediary, captives manager and best employee benefits consulting firm by multiple industry sources. Visit www.aon.com for more information on Aon and www.aon.com/manchesterunited to learn about Aon's global partnership and shirt sponsorship with Manchester United.

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