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Understanding the Scientific Components of Risk: Insights from Catastrophe Modeling

This comprehensive analysis delves into the scientific components of risk and catastrophe modeling. It explores various concepts including hazard, exposure, and vulnerability, highlighting the complexity of loss estimation following significant events like earthquakes. Emphasizing the importance of applying stochastic models, this study reveals how top-tier proprietary cat modelers manage diverse teams of experts and maintain consistency within model parameters. Furthermore, it examines the financial impact of disasters, post-event loss amplification, and the necessary real-time response frameworks for effective risk management.

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Understanding the Scientific Components of Risk: Insights from Catastrophe Modeling

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  1. The scientific components of risk Up to your neck

  2. Stochastic The universal grammar of Catastrophe Modeling 2ndary Modifiers Exposure Vulnerability Hazard Adjective Subject Adjective Verb (Adverb) Object The strongearthquakeseriously damagedthe unreinforcedhotel

  3. 100 year loss = $131 million Exceedance Probability (EP) Output 10 8 6 Annual Probability of Exceedence (%) 4 2 Integral is the AAL 0 0 50M 100M 150M 200M 250M 300M Loss Amount

  4. The topography of Risk - Residential Woodframe Loss Cost – Florida 0.7-1.0 0.5-0.7 % AAL 0.3-0.5 0.1-0.3 0.05-0.1 0.00-0.05

  5. Post-event loss amplification - In major Catastrophes loss does not occur in isolation $ Loss FinancialLoss Stochastic Political Context Economic Context Total Event Impact Vulnerability Claiming Hazard

  6. What do proprietary Cat modellers do that is difficult? • Manage teams of top ex-academic expert (egos), from a diverse range of fields, into a single coherent team • Ensure consistency & calibration among all model elements • Model compression and convergence • Capture and output uncertainty • High performance business computing environments • Model maintenance: upgrades, bug fixes, servicing, 24/7 technical and software support • Real time catastrophe response RMS has more than 100 scientist/engineer PhD modelers

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