A veritable who’s who in the insurance industry attended the two day conference in Paris organized by Oakland based EQE International and EQECAT, Inc. its catastrophe modeling arm, to hear an exhaustive review of “Insurance Risk Quantification.”
The 140 people in attendance heard presentations on catastrophe modeling and related subjectssuch as windstorms, hailstorms, flooding, Risk Securitization, weather derivatives, and the current ability of models to quantify and assess catastrophe risks.
EQECAT President Mike Vallejos opened the meeting with an overall review of 1999, one of the worst on record for insurers, which saw 52,000 people die from earthquakes, storms and man-made catastrophes.
“Estimated insured losses reached $22 billion,” Vallejos said. He underlined the increasing need for better and more reliable forecasting, which can only be achieved through improved modeling techniques, such as those which EQECAT, a world leader in the field, has created.
EQE International President, Peter Yanev, remarked that the December storms in Europe, which have so far produced an estimated $6 billion in insured losses in France alone, “was a wake up call for the Europeans, like the Northridge earthquake was for the companies in California.”
“It really got their attention,” Yanev said. The result was evident in the presentations. Jean-Paul Conoscente, who heads EQE’s Paris office, discussed the latest innovations in windstorm modeling, but said it was really impossible to make long range calculations, as there were too many unknowns.
Climate changes and global warming and the possible effects on the weather interest everyone, “but accurate data really only covers about the last 50 years,” Conoscente said. “And its not enough to make a judgment on who’s right and who’s wrong.”
Somehow, Simon Collier of Goldman Sachs managed to sum up the Evolution of the Risk Securitization Market in 40 minutes, and make it understandable. He succinctly explained the mechanics of securitization transactions, and emphasized the need for advanced modeling techniques in risk assessment and the concomitant requirement for accurate data on which to build the models.
“As these [risk securitizations] are new products, potential investors aren’t familiar with them, and it’s absolutely essentially to provide them with accurate data,” Collier said.
EQECAT also revealed a new, and extremely precise, earthquake damage assessment model, which covers the entire U.S., and particularly California, which has the highest risk.
The program, available by license from EQE, enables an underwriter to assess all the aspects of a potential risk from a laptop computer in minutes, including as many variables and possibilities, desired.
“The goal is to reduce loss of life, the financial impact and the economic burden, ” Vallejos said. “As catastrophe models evolve, and become more accurate, the insurance industry will find their use increasingly necessary in assessing risks, and in improving safety standards to accomplish this.”
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