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For example, an earthquake model estimates the level of ground motion across the region for each earthquake in the event set, considering the propagation of seismic energy. For hurricanes, a model calculates the strength of the winds around a storm, considering the regions terrain and built environment.
RMS models integrate and synthesize the relevant science, data, engineering knowledge, and behavior of claimants and insurers to understand the potential impacts of events before they occur.
Three CAT models are used today: AIR Worldwide (AIR), Risk Management Solutions (RMS), and EQECAT, with RMS being the most widely used for retail insurers.
How Models Work Event Generation: Large catalogs of simulated events capture the frequency, severity, location, and other characteristics of the entire spectrum of plausible catastrophes. Local Intensity Calculation: For each simulated event, the intensity of the hazard is calculated at each affected site.
Issue: A catastrophe model (or cat model) is a computerized process that simulates potential catastrophic events and estimates the amount of loss due to the events for property as well as casualty lines.
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Stochastic Event Module. The first stage of catastrophe modeling begins with the generation of a stochastic event set, which is a database of scenario events. Hazard Event Module. The hazard module assesses the level of physical hazard across a geographical area at risk. Vulnerability Module. Financial Module.
Catastrophe modeling (also known as cat modeling) is the process of using computer-assisted calculations to estimate the losses that could be sustained due to a catastrophic event such as a hurricane or earthquake.
Catastrophe models calculate the exposure of (re)insurers over a prolonged period and not just over the course of a single year. Catastrophe models help (re)insurers to identify, understand and manage the fluctuation in the number and severity of claims associated with large catastrophic loss events.
Basic components underpinning a catastrophe model include hazard, vulnerability, exposure and financial. The first three components are based on the widely known concept of Risk Triangle as shown in the picture.
For over 30 years, Risk Management Solutions (RMS), a Moodys Analytics company, has helped to pioneer the catastrophe risk industry. Moodys RMS risk models underlie the nearly US$2 trillion Property and Casualty industry and many insurers, reinsurers, and brokers around the world rely on Moodys RMS model science.