How many cat models do you need?

Above I steal the headline from this Susanne Sclafane piece, with the money quote:

. . .Bill Keogh, president of EQECAT, said that while reinsurers were early adopters of models—and multi-model approaches—insurers are now recognizing “that you can’t optimize to one model because you become subject to model change—and that can throw off your whole capital structure.”

Keogh also said the overriding purpose of a multi-model approach is for insurers and reinsurers to develop their own views of risk. “If you have multiple models, the first thing you have to do is understand why are they different—and as you explore that difference, you begin to have your own perspective on the risk,” he said.

I’ve often thought cat modelers should be like TV weathermen. The weatherman consults a variety of models, knows the strenghts and weaknesses of each, then comes up with a forecast that he or she explains in laymen’s terms.

That implies that most companies should run more than one cat model.


One thought on “How many cat models do you need?

  1. […] am reminded of that by this article on cat models (via Jim Lynch): Speakers at several recent insurance conferences stressed the need for property insurers and […]

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