AIR updates severe thunderstorm adds new crop hail risk models

by Artemis on July 23, 2014

Catastrophe risk modelling firm AIR Worldwide has released an updated version of its Severe Thunderstorm Model for the U.S., along with the industry’s first fully probabilistic Crop Hail Model, also for the United States.

The updated Thunderstorm Model will be useful to insurance-linked securities (ILS) managers as well as traditional reinsurers, as both catastrophe bonds and collateralized reinsurance widely cover significant thunderstorms, tornado and hail risk.

The latest version of the model was created using a decade’s worth of new research and data, including roughly $3 billion in insurance claims, covering all major catastrophes in 2008, 2011 and 2013.

Manager and lead scientist at AIR Worldwide, Scott Stransky said; “The culmination of this new data, research, and 15,000 person-hours of development time is a model that provides a more comprehensive view of U.S. severe thunderstorm risk. Such a model serves to provide companies with the high-resolution, detailed view of the risk needed to assess the impact of severe thunderstorm losses on their portfolio.”

Another significant development to AIR’s latest model is that to create a much more complete image of the risks associated with severe U.S. thunderstorms, the software now captures smaller events (below $25 million in insured losses), which may last less than a day but still impact a firms portfolio on an aggregate basis.

Prior to its release the latest version of AIR’s Touchstone 2.0, which incorporates the new Severe Thunderstorm Model, was tested and reviewed by several world-renowned severe thunderstorm experts – including Dr Harold Brooks, senior scientist at the National Severe Storms Laboratory, Brooks commented; “The AIR model is realistic and represents the likely variability of intensity that will allow users to make better decisions about their exposure over a range of time horizons.”

While AIR assistant Vice President Cagdas Kafali, had this to say about the model’s complex risk differentiating abilities; “The AIR model explicitly accounts for not only primary building features, construction type, occupancy, number of stories, and year-built but also many secondary features, such as hail-resistance category of the roof cover and other roof and building envelope characteristics.”

So it’s fairly evident that industry and severe thunderstorm experts are impressed with the latest model’s capabilities and the data, research and time invested looks set to be valuable to ILS managers and reinsurers alike. A more comprehensive view of the risks associated with severe U.S. thunderstorms will only ensure greater preparation is taken, an investment that is likewise offered through AIR’s unprecedented crop-hail model.

With the current soft market conditions ILS and collateralized reinsurance capacity players are looking for ways to diversify their risk portfolio and have increasingly looked to crop reinsurance for this. This highlights the value of AIR’s new pioneering crop hail model, which uses the same 10,000-year stochastic model catalogue as their updated Severe Thunderstorm Model – of which hailstorms is a modelled peril.

As hail affects different crops at varied stages the Crop Hail Model uses crop-specific damage functions for corn, soybeans, wheat, cotton, rice and barley with a unique damage mechanism that accounts for the affect of hail on the different crops at different growth stages, ensuring the most appropriate protection is made available.

AIR’s newest 2.0 version of their Touchstone software incorporates the updated Severe Thunderstorm Model for the United States, as does version 16 of the CATRADER catastrophe risk management systems. The Crop Hail Model for the United States is also available in version 16 of the CATRADER software.

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