Katrina spurs risk modelling rethink across US insurance sector


That was the conclusion of witnesses who appeared before the House Financial Services Subcommittee on Capital markets, insurance and government sponsored enterprises to testify at a hearing on Stabilising insurance markets for coastal consumers, in September.

"A true mega-catastrophe striking a heavily populated area could potentially exceed private [insurance] market capacity. Therefore, it is appropriate for policymakers to study whether government programmes should be created to assist policyholders and insurance companies to prevent and prepare for such mega events in those regions that are particularly vulnerable," said Charles Chamness, president of the National Association of Mutual Insurance Companies.

In addition to calls on the government for assistance, regional supervisors also revealed that sharp price increases in property insurance.

"Insurance costs are not going up to directly recoup the losses of 2004 and 2005. They are going up because the losses of 2004 and 2005 have demonstrated a level of risk potential for the future that has insurers rethinking what their prospective losses will be going forward," said Kevin McCarty, insurance commissioner for the state of Florida.

"When an insurer suffers a 1-in-500 year event in consecutive years, it rightly begins to question the validity of its models and risk management assumptions, and adjust its future expected losses accordingly," he added.

Franklin Nutter, president of the Reinsurance Association of America said: "Modellers revised their models following the 2005 hurricane season due to new data and the belief that we are entering an era of increased hurricane frequency and severity. Reports are that Florida catastrophe models increased 60% for frequency and 40% for severity with Gulf Coast models revised for a 20% increase in frequency and 15% for severity.".

"Yet despite the losses of 2004 and 2005, private market reinsurance capacity increased in 2006. OR&C

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact info@risk.net to find out more.

Calibrating interest rate curves for a new era

Dmitry Pugachevsky, director of research at Quantifi, explores why building an accurate and robust interest rate curve has considerable implications for a broad range of financial operations – from setting benchmark rates to managing risk – and hinges on…

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here