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Lloyd’s Realistic Disaster Scenarios

Lloyd’s Realistic Disaster Scenarios. 14 th October 2004. Background to Lloyd’s. In existence since 1688 World's leading insurance market 66 syndicates Over 160 brokers Capacity of approximately £15.0 billion. Profile of the Lloyd’s Market. A .

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Lloyd’s Realistic Disaster Scenarios

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  1. Lloyd’sRealistic Disaster Scenarios 14th October 2004

  2. Background to Lloyd’s • In existence since 1688 • World's leading insurance market • 66 syndicates • Over 160 brokers • Capacity of approximately £15.0 billion

  3. Profile of the Lloyd’s Market A

  4. Profile of Lloyd’s Capacity & Managing Agents

  5. Lloyd’s Realistic Disaster Scenarios(RDSs) • Lloyd’s RDSs were introduced in 1995 • Requiring syndicates to carry out disaster planning • Based on a range of hypothetical scenarios • Scenarios mainly based on historical disasters • “Failure of North Sea Complex” – from Piper Alpha • “Marine Collision” – from Exxon Valdez • “Japanese Earthquake” – from 1923 Great Kanto Event

  6. RDS Overhaul Project • Two year RDS Overhaul Project • Improve consistency of risk assessment • Raise Loss Modelling standards in the market • Collaborative Process • Market Experts Group • Lloyd’s Market Association – Marine RDS • AIR, EQECAT and RMS • Florida Windstorm • California Earthquake • Overhaul to be Completed in April 2005 • Will take account of feedback received in 2004

  7. Why Overhaul the RDSs? • To provide a more reliable and accurate measurement of risk, based on a more comprehensive and consistent approach • To measure the market’s and syndicates’ exposures to a series of major catastrophes • RDS assumptions and practices varied widely • Significant variations observed in “Aggregate” to “Gross Loss” relationships • Wide variations in methodologies • To provide a better understanding of Lloyd’s aggregate risk profile • For catastrophes • As an input to capital setting and allocation decisions • As an input in managing Central Fund exposures

  8. RDS Guidance and Instruction • Issued in April 2004 • Replaces previous “Regulatory Bulletins” with a comprehensive guide to the assessment of catastrophe exposures • Key sections include • Definitions • Calculation Principles • Recommended Best Practice • “Event Subset” Submissions • Scenarios and Events • Available on Risk Management Website • www.lloyds.com/riskmanagement

  9. Scenarios and Events AGGREGATING SCENARIOS 11 Second Event 12 Florida Windstorm 13 California Earthquake 14 New Madrid Earthquake 15 European Windstorm 16 Japanese Earthquake 17 Terrorism SINGLE RISK SCENARIOS 1 USA Windstorm 2 Marine Event 3 North Sea – Loss of Major Complex 4 Aviation Collision 5 Major Risk Loss 6 Satellite Risks 7 Liability Risks 8 Political Risks 9 Alternative RDS: A 10 Alternative RDS: B

  10. Marine RDS • Syndicates must return two scenarios • Collision in Prince William sound • Major Cruise Vessel Incident • Increased guidance for both scenarios • Specification of losses to the International Group of P&I Associations Reinsurance Programme.

  11. Marine collision in Prince William Sound

  12. California Earthquake EVENT FOOTPRINTS EXPOSURE DISTRIBUTION

  13. Catastrophe Loss Modelling Software – Florida Windstorm & California Earthquake • Three agencies - AIR, EQECAT & RMS • Working with the three catastrophe modelling agencies has enabled us to: • Specify new events tightly, by industry loss level • US$70bn and $54bn respectively • Based on Commercial (including Industrial) and Residential losses • Specify 2 events of similar magnitude • Better coverage of risk (e.g. LA and San Francisco) • Derive Average Damage Factors • Feasible events cannot destroy all properties

  14. Florida Windstorm and California Earthquake • County level “Footprints” • “Aggregate” to be based on county exposures in “Footprint” • County level damage factors • Derived from discussions with AIR, EQECAT and RMS • Prompt for additional lines of business to include • Marine, Specie/Fine Art, Personal Accident, Aviation, Liability • Exclusion of classes viewed as “impossible” to model • Contingent Business Interruption • Aviation Hull in Earthquake

  15. RMS “Roll-up” exercise • Pilot study with five managing agents • Combining Event Loss Table output • To validate choice of new RDS events • To assess feasibility of combining syndicate results • Analysis split by broad business categories • Direct & Facultative • Treaty • Binder

  16. RMS “Roll-up” exercise – California EQ

  17. RMS “Roll-up” exercise

  18. RMS “Roll-up” exercise

  19. Terrorism RDS

  20. Terrorism RDS • 2-tonne conventional bomb attack on Empire State Building • Damage zones and levels specified in scenario • TRIA and non-TRIA events • Specification of deaths, injuries and BI • Fire-following, Number of Events and CBRN Guidance • Focus on data resolution • Address-level best for urban accumulations • Guidance for proportions in 10001, 10016 and 10018

  21. Terrorism RDS

  22. Data Resolution Source: Munich Re. Topics Geo 2003

  23. RDS Results Playback • Visits • Each Managing Agent visited by two or more Risk Executives • General questions asked concerning: • Data capture and resolution of data • Identifying relevant policies • Loss calculation and expected values • The return process & quality assurance • Modelling methods • Review of one RDS scenario from start to finish

  24. RDS Results Playback • Packs • Every syndicate receives a pack prepared solely for their own use. • Contains syndicate specific analysis on: • Aggregate, Gross, Net and Final Net losses • Losses in relation to capacity and hence Franchise Performance Guidelines • Ranking within the market • Includes analysis on modelling types at both market and syndicate level for each scenario. • Graphical representation of Losses, Average Damage Factors (ADFs) and Ranking.

  25. RDS ResultsModelling Type Analysis

  26. Four-Stormed is Forearmed 14 October 2004

  27. How Hurricanes are Formed • Thunderstorms drift over warm ocean waters. • Warm air from the storm and ocean surface combine and begin rising, creating low pressure. • Trade winds blowing in opposing directions cause the storm to start spinning. • The rising warm air causes pressure to decrease at higher altitudes. • Air rises faster and faster to fill this low pressure, in turn drawing more warm air off the sea and sucking cooler, drier air downwards. • As the storm moves over the ocean it picks up more warm, moist air. Wind speeds start to increase as more air is sucked into the low pressure centre. • It can take hours or several days for a depression to grow into a fully-formed hurricane.

  28. Lloyd’s 2004 Realistic Disaster ScenariosDistribution of Florida Property Values

  29. Hurricane Charley – The facts • Hurricane Charley made landfall at Sanibel Island, Florida, late on the afternoon of 13 August 2004. • Maximum sustained winds were near 145 mph after upgrading to a Category 4 storm, causing severe damage and flooding in coastal areas. • Hurricane Charley had been expected to make landfall near Tampa, 120 miles to the north, but shifted course at midday and brushed low-lying islands. • Charley was responsible for the death of 27 people in Florida.

  30. RDS 2004 - Pinellas Hurricane Event Footprint Estimation of track of Hurricane Charley

  31. Hurricane Frances – The facts • Hurricane Frances made landfall at Sewall’s Point in Martin County, Florida, at 05:00 GMT on Sunday 5th September. • Maximum sustained winds were near 105 mph and Frances dropped more than 33cm of rain along Florida’s east-central coast. • Insured losses will be limited because much of the damage has been caused by flooding, which is covered by the National Flood Insurance Program. • Frances was responsible for the death of 23 people in Florida.

  32. RDS 2004Miami-Dade Hurricane Event Footprint Estimation of track of Hurricane Frances

  33. Tracks of Hurricane Charley & Hurricane Frances Source: Guy Carp.com. Cat-i Reports Hurricane Frances Update- Report 10, September 7, 2004

  34. Hurricane Ivan – The facts • Hurricane Ivan made landfall just west of Gulf Shores in Baldwin County, Alabama at 07:00 GMT on Thursday 16th September. • Maximum sustained winds were near 130 mph when it came ashore and subsequently moved inland and weakened. • Ivan was responsible for the death of at least 50 people in the United States in addition to over 70 people in the Caribbean.

  35. Tracks of Hurricanes Charley, Frances & Ivan Source: Guy Carp.com. Cat-i Reports Hurricane Ivan Update- Report 13, September 17, 2004

  36. Hurricane Jeanne – The facts • Hurricane Jeanne made landfall near Hutchinson Island just east of Stuart in Martin County, Florida at 04:00 GMT on Sunday 26th September. • Maximum sustained winds were near 120 mph (Cat 3) when it came ashore and subsequently moved inland and weakened. • Jeanne was responsible for the death of at least 3,000 people in Haiti mainly due to flooding and 8 people in Florida.

  37. Track of Hurricane Jeanne Source: Guy Carp.com. Cat-i Reports Hurricane Jeanne Update- Report 7, September 27, 2004

  38. Tracks of the Four Hurricanes Source: Guy Carp.com. Cat-i Reports Hurricane Jeanne Update- Report 7, September 27, 2004

  39. Industry Loss Estimates

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