JBA launches catastrophe risk modelling platform. What it means for ILS

by Artemis on May 29, 2015

Catastrophe and hazard risk modelling company JBA Risk Management today launched its first catastrophe risk modelling platform, JCalf 15, featuring multi-peril probabilistic models and is relevant to both reinsurance and ILS users.

JBA has a particular focus on flood modelling, with coverage to match or better many other risk models. It specialises in modelling flood risks at high-resolution and captures all perils associated with flood risks. It also provides models for regions which are often lacking in coverage, but where there are opportunities for insurance-linked security (ILS) or reinsurance players to diversify.

“The needs of re/insurers are changing – they are having to manage increasingly diverse exposures, often with reduced overheads and growing regulatory commitments,” commented Iain Willis, Technical Director at JBA Risk Management.

Willis added that catastrophe model coverage can be limited, particularly in emerging insurance or reinsurance markets, something JBA hopes to address with its new platform and its flood models.

“To address this, we’ve seen a new wave of catastrophe modelling platforms enter the market. They are flexible, client-focused, but most importantly, not burdened by the legacy of the ‘black box’. It’s exciting; it gives clients more choice and the innovation is really opening up cat modelling for new players,” he explained.

JCalf 15, launched this morning to an insurance and reinsurance industry audience at Lloyd’s, is a catastrophe risk modelling platform replete with multi-peril probabilistic risk models. The platform allows users to analyse complex insurance terms and conditions, providing users with all the key loss metrics required in exposure management.

That is also important in insurance-linked securities (ILS) portfolio management, as the ability to analyse terms becomes increasingly important in the current reinsurance market environment.

Artemis spoke with Willis to gain a better understanding of how this new catastrophe risk modelling platform could be relevant for participants in the ILS market.

Willis explained that the platform will provide the ability to analyse all types of coverages and lines of businesses, as well as being able to run treaty structures. The model outputs are all standardised probabilistic model metrics, which will be familiar to many ILS portfolio managers and underwriters (e.g. AALs, AEP, OEP, ELTs).

JCalf 15 will be particularly of interest to ILS managers who participate in large reinsurance programmes on a collateralized basis, as these layers of risk often include flood exposures, an area that JBA specialises in. It will also be of interest to ILS players looking to diversify, given the coverage of other peak risk zones in less developed economies.

Willis explained; “In terms of coverage, current catastrophe model coverage, particularly for flooding, can be limited, this is where JCalf 15 will greatly add value – we’ve currently developed catastrophe models covering 23 countries across the world.

“The principle models are GB river flood, a European river flood model (covering 13 countries), as well as models for Thailand, India, Sri Lanka, Malaysia. Aside from river flood, it’s important to note we can model other natural perils – such as flood sub-perils (surface water, storm surge) and tropical cyclone wind damage.”

UK flood is a peril that ILS has always been interested in and some managers already provide collateral to reinsurance layers that cover this peril. JBA is soon to update its UK flood risk model.

“We’re updating our current model to very shortly release a model that captures the full scope of flood risk in the UK – it captures river, surface water flooding and coastal storm surges – all of which are prevalent risks in the UK. We’re also expanding the model to cover England, Scotland, Wales and Northern Ireland. It’ll be the first of its kind,” Willis said.

We asked Willis how ILS players, particularly investors, can benefit from the new JBA risk modelling platform.

He responded; “First and foremost, we are model focused. But given our expertise in flood modelling, consultancy and hazard assessment, the JCalf platform was a natural progression for us to get our models to market.

“With specific regard to the ILS market, our models and datasets can help investors structure those bonds. We saw ILS bonds issued following the June/July flooding in the UK in 2007; likewise, there is significant potential in emerging markets given events such as the 2011 flooding in Thailand. We now have the model coverage, the analysis platform and the market data in many of these regions to help support the ILS market.”

The new flood model could be another step towards a UK flood catastrophe bond as well, Willis believes, as he feels the model provides better capture of the true risks associated with the peril.

Willis continued; “It’s all about capturing the variant nature of flood risk in the UK. Surface water flooding last year, river flooding in 2007, storm surges following large winter storms are all prevalent in the UK. By capturing these risks we are able to provide a more holistic view of UK flood risk. This in turn gives investors more confidence that modellers are truly capturing catastrophic flood risk.”

JCalf 15 also allows for users to gain a deeper understanding of uncertainty, allowing user-defined sampling to give the ability to achieve an enhanced quantification of loss uncertainty. In terms of output the platform provides both gross and ground-up damages.

JBA Risk Management is agnostic about how models are accessed by clients, so users can utilise their in-house risk models on the platform. “We believe that cat model users should be able to choose the platform they use independently of their choice of data,” Willis said.

JCalf 15 can be adjusted to suit the specific users needs, can run a selection of JBA models and also enables users to adjust model parameters, data and even add their own models to the platform. It’s designed to be scalable and can be run on PC’s or high performance computing platforms.

French reinsurer Caisse Centrale de Réassurance (CCR) has been using JCalf since 2012. Laurent Montador, Executive Vice President of CCR, said; “The JCalf platform has provided a valuable addition to our catastrophe exposure management here at CCR. We have a successful and ongoing collaboration with JBA, and using JCalf allows us to further expand our existing cat model coverage.”

Jane Toothill, Director at JBA Risk Management, commented on today’s launch; “First and foremost, we are focused on being a trusted service provider to the industry – whether that’s making hazard datasets, maps or catastrophe models. JCalf 15 is another natural progression for us and helps facilitate clients to access, run and make decisions using the JBA Risk Management view of risk.”

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