AIR’s ‘Global Exceedance Probability Curve’ Report Shows Industry Loss Metrics

January 15, 2015

Catastrophe modeling firm AIR Worldwide estimated that the 1 percent exceedance probability loss (or the 100-year return period loss) is approximately $231.5 billion and the long-term average annual loss from natural catastrophes and terrorism is $72.6 billion.

These statistics were contained in AIR’s report called “2014 Global Exceedance Probability (EP) Curve,” which detailed key loss metrics for the insurance industry, such as average annual loss and select return period losses.

The 2014 report bases its global loss metrics on perils and regions currently modeled by AIR, including most new models and updates released during 2014, as well as updated industry exposure databases as of the end of 2013, AIR said in a statement.

Illustrating the annual variability of losses, insured losses from global natural and man-made catastrophes in 2014 were approximately $34 billion, said AIR, quoting Swiss Re statistics. AIR said this figure is about half the average of $64 billion over the last 10 years.

Losses in 2013 were also well below the long-term average; in contrast, losses in 2011 exceeded $110 billion (the second highest on record, after 2005).

“AIR’s global industry exceedance probability curve can be used to obtain a comprehensive and meaningful view of potential losses and to put actual losses into context,” said Bill Churney, COO, AIR Worldwide.

“Companies operating on a world stage need to understand their risk across global exposures to ensure they have sufficient capital to survive years of very high loss,” he said.

“Understanding – owning – this risk requires knowing both the likelihood of high-loss years and the diversity of events that could produce such losses,” Churney continued. “This is the real value of having credible catastrophe models across multiple perils and regions that can be analyzed together seamlessly – to fully anticipate possible global outcomes, including future catastrophes and future years that will produce losses exceeding any historical amounts.”

A full version of this report can be found on AIR Worldwide’s website.

Source: AIR Worldwide

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