Guy Carpenter releases probabilistic model for European hail risks

One of the world’s leading risk and reinsurance broking specialists, Guy Carpenter & Company LLC (GC), has launched a new pioneering probabilistic hail risk model for Europe, the G-CAT Hail Model.

The new leading-edge hail model utilizes a lightning detection system, developed for GC by atmospheric research company nowcast GmbH, which uniquely produces historical hail tracks.

The lightning detection system, LINET, is part of the software’s hazard module and uses parameters of lightning data from the European Severe Weather Database and the German Space Agency to reconstruct hail occurrences in previous storms, aiming to provide a more comprehensive view of hail as a peril.

Mark Weatherhead, Head of Catastrophe Model Development at GC commented on the benefits of using the lightning data, saying; “There is no direct way of measuring hail intensity over broad scales and so the challenge is to find a good proxy measure of hail occurrence that can be used on a consistent basis over the entire area of interest. To this end, we have formed a partnership with nowcast GmbH who are using leading-edge technology to track the occurrence of those lightning parameters that best reconstruct the possible occurrence of hail in a storm track.”

It seems the new launch from GC has arrived at a vital time, as hail-related insured losses in Europe have reached record highs. In Germany last year hailstorm Andreas struck causing an industry loss of more than $3 billion, and while the focus on perils throughout Europe is often windstorms and floods, Andreas shows just how dangerous and costly hailstorms can be. Also this year hailstorm Ela struck northern Europe creating insured losses from hail and wind of over $2 billion.

Hail risk is increasingly a feature in the insurance-linked securities (ILS) market, as ILS fund managers allocate capital to European catastrophe reinsurance programmes on a collateralized basis, so gaining exposure to this peril. Some ILS funds were exposed to hail storm Andreas in 2013 and also to Ela in 2014 as well, so visibility and modelling of European hail risks is increasing in importance for ILS.

Fundamentally though hail is an extremely complex risk to assess and experts have warned that experience-based predictions and actions can only take you so far, and this is where the new model hopes to takeover and excel.

Project Leader for the G-CAT Hail Model, Max Strasser, commented on the potential impact of hailstorms; “In a bad year hail can be the largest source of loss in some places. Hailstorm Andreas which occurred in Germany in July 2013 generated an industry loss in excess of USD3 billion, but we don’t know if this is at the extreme tail-end of the range or something we could expect on a more regular basis.”

The probabilistic European Hail Model aims to be a vital mechanism in the analyses and predictions of the risks associated with hailstorms, on a local level and a wider Continental European region. By providing a more comprehensive view of hail risks the work of GC and nowcast GmbH in developing this tool is sure to be highly valuable to insurers and reinsurers.

Continental Europe and MENA Chief Executive Officer (CEO) Massimo Reina said; “Understandably our clients are very interested in managing the hail peril and so our new model allows them to take a view on hail across their entire European portfolio.”

Currently the model is available for Austria, Germany, Italy, Poland and Slovenia, it’s expected to be introduced across more European regions throughout 2015.

Also read on U.S. hail losses:

– Hailstorm frequency, severity, insured losses increase since 2007: Verisk.