Uses of CAT Models

The main users of catastrophic models are Insurance Companies, Reinsurance Companies and Reinsurance brokers involved in property insurance. The modeling enables the users to quantify risks and inform underwriting decisions daily.

• Insurers and risk managers use cat modeling to assess the risk in a portfolio of exposures. This helps in guiding an insurer's underwriting strategy or help them decide how much reinsurance to purchase.
• Some state departments of insurance allow insurers to use cat modeling in their rate filings to help determine how much premium their policyholders are charged in catastrophe-prone areas.
• Insurance rating agencies such as  and Standard & Poor's use cat modeling to assess the financial strength of insurers that take on catastrophe risk.
• Reinsurers and reinsurance brokers use cat modeling in the pricing and structuring of reinsurance treaties.
• Insurers and Reinsurers use cat models to derive the required capital under the Solvency II regime.
• Cat models are used to derive catastrophe loss probability distributions which are components of many Solvency II internal capital models.
• Catastrophe bond investors, investment banks, and bond rating agencies use cat modeling in the pricing and structuring of catastrophe bond.

Kenneth Obong’o Oballa

Training Manager,

Zep-Re (PTA Reinsurance Company)