Impact Forecasting, Aon Benfield’s catastrophe model development team, has launched its U.S. severe thunderstorm (STS) scenario model to help insurers more accurately estimate annual losses based on historical data. Aon Benfield is the global reinsurance intermediary and capital advisor of Aon plc.
Severe thunderstorms can produce damaging winds in excess of 57 mph, hail 1.00 inch in diameter or greater, and occasionally tornadoes. The costliest U.S. thunderstorm outbreak on record occurred in late April 2011 across the Lower Mississippi Valley and cost insurers $7.7 billion in today’s dollars. Over the last 10 years (2006-2015), severe thunderstorms have overtaken tropical cyclone as the costliest peril for U.S. insurers on an average annual basis.
When aggregated, these losses from severe thunderstorms can significantly impact the profitability of an insurer’s treaty program. However, these may not be accurately assessed in probabilistic models which seek to identify the most probable maximum loss from a single event. The new model – STS RePlay – bridges this gap by incorporating the last 12 years of historical severe thunderstorm data from the Storm Prediction Center and replaying it to create nearly 7.5 million scenarios that are used to calculate average annual losses.
The results from Impact Forecasting’s STS RePlay benefit insurers by:
- Offering a complementary view to a probabilistic model by drilling down to the annual average loss in addition to the probable maximum loss.
- Assessing historical severe thunderstorm events in 48 U.S. states to quantify current loss expectations.
- Enabling them to make more informed reinsurance purchasing and underwriting decisions.
- Supporting insurers’ expansion into new U.S. regions by identifying a credible loss experience to be expected.
Source: Impact Forecasting
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