European Floods

Cat Modeling 2014, February 12, Orlando

Adam Podlaha

Agenda
Section 1 Section 2 Section 3 Section 4 Section 5 Introduction Data availability Flood modelling Selected chapters of flood modelling in Europe Close

Proprietary & Confidential

Section 1: Introduction

Flood losses in Europe Flood insurance coverage in Europe

Flood losses are second highest after windstorm

Source: http://catastropheinsight.aonbenfield.com
Proprietary & Confidential

Flood losses are regularly present in Europe

And there is no reason why this shouldnt continue Often cross country events Catastrophe modelling is needed

Source: http://catastropheinsight. aonbenfield.com

Proprietary & Confidential

Different flavours of flood coverage in Europe

Different flavours and obscurities present due to Europes fragmentation
Country Description

Czech Rep. (+ SK, PL)

Austria

All covered, limits for Ind & Com, no limits for Res, commercial rates for primary, frequent recent experience with flooding
All covered, very small (few 1,000s ) for Res, almost no top-up available, doesnt affect the primary rate as much, rating system available

Netherlands No Res cover available, very limited Com & Ind cover, cars covered, talks about pool in 2013, not happening as of now Switzerland Germany 2 insurance pools, mandatory cover in some, in some no commercial rate for primary, no reasons for rating systems Low insurance penetration in the former West. Germany, higher in former East. Germany, primary rating system available High penetration in all occupancies, commercial rates, good rating systems, talks about a pool to happen soon
Proprietary & Confidential

UK

Section 2: Data availability

Portfolio data Model development data

Better portfolio data in places with recent flooding

..., flood coverage available & functional rating systems (go hand in hand) Geo-coding
At least postal code available, longitude & latitude data varies from all to none

Primary and secondary modifiers

Limited number of modifiers can be really used for modelling either due to unavailability or the model not being able to use those

Common issues
Multi-locations for industrial occupancy Wrongly assigned longitude and latitude Inconsistency in what belongs to which occupancy

Portfolio data are improving with events happening, also due to rating needs
Proprietary & Confidential

Detailed model develop. data, not always cheaper

Elevation data and other topographic data
Country specific data: from topographical maps or remote sensing (on increase) Continental data: remote sensing based, need to be careful about the specs Many topographic data still from country specific providers

Hydrological data
The availability is generally very good The cost varies widely from free to very costly

Geo-coding data
The usual: Google, ESRI, Bing, PBS for address geo-coding

Same + others for postal code data, local providers as well

Data for loss estimation from just happening events

Remote sensing data (disaster charters, PERILS etc.)

Conclusions: more and better data are available, cost varies widely
Proprietary & Confidential

Section 3: Flood modelling

Flooding types Model types Availability Two basic approaches

Flooding comes in many different flavours

Fluvial (riverine) flooding flood plain and offflood plain Storm surge Tsunami Pluvial flooding / cloudbursts / rainfall
Flood plain extent (shades of blue) with off-flood plain buffers (red)

Conclusion: different flood types need different modelling approaches

Proprietary & Confidential

10

Scenario models the 1st step in risk quantification

1. Scenario models
Historic events Events linked to particular return period Hypothetical events Dam breaks,
Loss [% of TSI] 0.08%

0.07%
0.06% 0.05% 0.04% 0.03%

0.02%
0.01% 0.00% 1 10 Return period [years] 6yr 7yr 56yr 100

2. Fully probabilistic models

Losses [% of TSI]

Stochastic event set needs to be generated (assumptions) Other components same

Conclusion: Ideally modelling solution includes both probabilistic and scenario models
Proprietary & Confidential

0.10% 0.09% 0.08% 0.07% 0.06% 0.05% 0.04% 0.03% 0.02% 0.01% 0.00% A Modelled B Observed C Company D E

11

Brokers, RIs, Insurers & others ahead of vendors

Classic vendors offer limited model coverage (UK, DE, BE, AT) Brokers, Reinsurers, Insurers and other commercial companies far ahead Why?
Harder to do than other perils (higher and often local based data requirements, tricky vulnerability comp, time consuming 2D modelling) It all adds to more expensive in both cost and time

New models face complex model acceptance (due to existing models, S2)
Need to involve local institutions due to handling complex issues The European flood modelling scene is not led by classic model vendors
Proprietary & Confidential

12

Climate model vs. river gauge based model

1. Global climate model based
Global Climate Model (rainfall)
Rainfall Run-off model (modelled discharge) Hydrodynamic modelling (flood extent with inundation depth / velocity / duration)

2. Measured discharge based

Measured discharge Hydrodynamic modelling (flood extent with inundation depth / velocity / duration)

Conclusion: In fact both approaches are part of one process, the difference is the starting point and what is modelled / measured
Proprietary & Confidential

13

Have a guess which approach is better suited to:

... capture global patterns in flooding? ... reconstruct historical events well? ... take into account existing hydrological regulations? ...take into account real climate trends? ... take advantage of the best measured data? ... represent best the nature of flooding in a given country? GCM

Flow
Flow

GCM / Flow
Flow GCM / Flow

Conclusion: each approach has its pros and cons, combination is possible
Proprietary & Confidential

14

Section 4: Selected chapters of flood modelling in Europe

Hazard uncertainty in the Dutch flood model Cloudburst modelling How to test and validate a flood model

Vulnerability curves development Location uncertainty quantification

Hazard uncertainty in the Dutch flood model

How many are there? ... Many To mention just few:
1. Safety standard of dyke rings (affecting the frequency of dyke ring being flooded) 2. Correlation of dyke rings (affecting the scale of events) 3. Maximum flood extent 4. Evacuation (Hazard?) Probability of flooding

Event sets
Optimistic Realistic Pessimistic

Correlation matrix

Low (isolated events)

Event set 1

Event set 4

Event set 7

Best estimate

Event set 2

Event set 5

Event set 8

High (large scale events)

Event set 3

Event set 6

Event set 9

All based on experts opinion

Conclusion: various uncertainties can be quantified / implemented by creating various event sets where the particular uncertainty varies
16

Proprietary & Confidential

Cloudburst modelling
Extreme rainfall events, very localized Pluvial flooding often (not-correctly) mixed with flash-floods Processing extreme rainfall intensities in a very short time steps (~5min) Two types of assessment:
Rainfall intensity based

Flood depth based

Proprietary & Confidential

17

Testing and validation of a flood model

Level 3 Guidelines on External Model and Data
The undertaking should perform their own validation of the material assumptions of the external model that are relevant to their risk profile and of the process for incorporating the external model and data into their own processes and internal model.

In addition to their own validation, undertakings may also leverage on the validation done by the vendors or other third party...

1. 2. 3. 4.

Sensitivity testing (input change) Back testing (historical events) Stability testing (effect of randomness) Stress testing (model change)

Proprietary & Confidential

18

Sensitivity testing aggregation (Thai flood)

Analysis resolution
Postal code CRESTA (canton)

Analysed aggregated to the analysis level, means:

More rows in the postal code run Less rows in the CRESTA run

Two effects
1. Change of spread 2. Change of mean / median Which causes what?

Proprietary & Confidential

19

Back testing as if 2013 event (Austria flood)

Background: To test the model results against values from observed historical events from hazard and loss point of view

As if 2013 data analysis

Modelled vs. real loss for the 2013 flood for the market and 8 portfolios
100%
80% 60%
Difference (% of real loss)

35.0%

80%
30.0%

29.8%

29.8%

26.8%
25.0%

40% 20% 0%

34% 16% 8% A B C D 7% E

34% 14%

Share of market loss

20.0%

15.0%

H -15%

market

10.0%

8.3%

-20% -40%
-42%

5.0%

3.6% 1.0% 0.1%

F G

0.7%
H

0.0% A B C D E

-60%

Proprietary & Confidential

20

Stability testing Number of samples (Swiss flood)

Background: To test the stability of the outputs with different number of samples

No. of samples can be changed in ELEMENTS interface Depends on the portfolio size
5.0% Difference from 200 DS [%] 4.0% 3.0% 2.0% 1.0% 0.0% 10 DS 25 DS 50 DS 100 DS 200 DS
2 5 10 20 25 50 100 150 200 250 500 1000 2000 5000 10000

-1.0%
-2.0%

-3.0%
-4.0%

-5.0%
Proprietary & Confidential

Return period [years] 21

Stress testing What if defences (Austria flood)

Background: What would happen if we modify one component of the model?

Austria Flood Model changing flood defences along Rhine The defence component constructed with settings as is planned in future

Original version Modif ied def ences

Losses [Millions ]

Legend
Border Lake

Flood Defence
SOP
30 100 500 10000

10

100 Return Period [years]

1,000

Actual status

Future defences

Proprietary & Confidential

22

Vulnerability curves development

Two main approaches
1. 2. Claims data Engineering
35% 450 400 30% 350 25% Loss data count 300 Loss ratio 20% 250 200 150

Assumptions
Claims data present realistic view on risk Sometimes no sufficient amount of data Lack of construction types differentiation

15%

10% 100

Possible solution
Use claim information as a basis Use shape of the engineering curve Use relations between engineering curves for different construction types

5% 50 0% 0 200 400 Flood depth (cm) 600 0

Loss data

Engineering curve

Loss data counts

Proprietary & Confidential

23

Location uncertainty quantification

2 insured locations
10% Histogram for Event 123002013 for perspective FGU with 5000 samples

Sum Insured 34 mil CZK Limit 8.5 mil

Perspective Box Plot Statistics for Event 123002013 with 5000 samples There are 328 zero samples 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0

8% 6% 4% 2% 0%

Histogram for Event 123002013 for perspective GR with 5000 samples 80% 70% 60% 50% 40% 30% 20% 10% 0%

FGU

SIR

GR

OTHP

RREC

NTY

NFAC

Proprietary & Confidential

24

Section 5: Close

Summary About Impact Forecasting Questions Contact

Summary
Flooding is the second major peril in Europe but first in some countries Classic 3 vendors offer limited flood model coverage however many models available from alternative vendors

Different types of flooding, different data available require innovative modelling approaches
The ability to quantify (and implement) various uncertainties is the key to understanding the risk Better synchronisation needed between primary underwriting systems and catastrophe modelling for reinsurance purposes

Proprietary & Confidential

26

About Impact Forecasting

Impact Forecasting Team
Catastrophe model developers Independent, transparent, open, modular and bespoke models Natural and man-made perils Filling gaps and main perils Global team (60+)

ELEMENTS platform
Runs our models Runs 3rd party models Visualisation: uncertainty & mapping 20+ programmers in last 4 years

Distributed to re/insurers and AB Integrated with ReMetrica, IWB Lite

Proprietary & Confidential

27

Proprietary & Confidential

28

How can our clients benefit?

1. Use our existing models
Documented Access to assumptions & developers

2. Custom projects for specific portfolios or non-modelled perils 3. Run ELEMENTS at your office
Open, quantification of uncertainty

ELEMENTS

Sandy storm surge flood extent by SERTIT supplied by PERILS

4. Integration of non-IF models or components to ELEMENTS 5. Assistance with underwriting

Proprietary & Confidential

ELEMENTS

29

Questions

Proprietary & Confidential

30

Contact

Adam Podlaha 55 Bishopsgate, EC2N 3BD London, United Kingdom

+44 (0)20 7522 3820 adam.podlaha@aonbenfield.com

Impact Forecasting www.impactforecasting.com Catatrophe Insight Join our LinkedIn group

Proprietary & Confidential

31

Disclaimer
Legal Disclaimer Aon Limited trading as Aon Benfield (for itself and on behalf of each subsidiary company of Aon Corporation) (Aon Benfield ) reserves all rights to the content of this report (Report). This Report is for distribution to Aon Benfield and the organisation to which it was originally delivered only. Copies may be made by that organisation for its own internal purposes but this Report may not be distributed in whole or in part to any third party without both (i) the prior written consent of Aon Benfield. and (ii) the third party having first signed a recipient of report letter in a form acceptable to Aon Benfield. Aon Benfield cannot accept any liability to any third party to whom this Report is disclosed, whether disclosed in compliance with the preceding sentence of otherwise. To the extent this Report expresses any recommendation or assessment on any aspect of risk, the recipient acknowledges that any such recommendation or assessment is an expression of Aon Benfields opinion only, and is not a statement of fact. Any decision to rely on any such recommendation or assessment of ris k is entirely the responsibility of the recipient. Aon Benfield will not in any event be responsible for any losses that may be incurred by any party as a result of any reliance placed on any such opinion. The recipient acknowledges that this Report does not replace the need for the recipient to undertake its own assessment. The recipient acknowledges that in preparing this Report Aon Benfield may have based analysis on data provided by the recipient and/or from third party sources. This data may have been subjected to mathematical and/or empirical analysis and modelling. Aon Benfield has not verified, and accepts no responsibility for, the accuracy or completeness of any such data. In addition, the recipient acknowledges that any form of mathematical and/or empirical analysis and modelling (including that used in the preparation of this Report) may produce results which differ from actual events or losses. The Aon Benfield analysis has been undertaken from the perspective of a reinsurance broker. Consequently this Report does not constitute an opinion of reserving levels or accounting treatment. This Report does not constitute any form of legal, accounting, taxation, regulatory or actuarial advice. Limitations of Catastrophe Models This report includes information that is output from catastrophe models of Impact Forecasting, LLC (IF). The information from the models is provided by Aon Benfield Services, Inc. (Aon Benfield) under the terms of its license agreements with IF. The results in this report from IF are the products of the exposures modelled, the financial assumptions made concerning deductibles and limits, and the risk models that project the pounds of damage that may be caused by defined catastrophe perils. Aon Benfield recommends that the results from these models in this report not be relied upon in isolation when making decisions that may affect the underwriting appetite, rate adequacy or solvency of the company. The IF models are based on scientific data, mathematical and empirical models, and the experience of engineering, geological and meteorological experts. Calibration of the models using actual loss experience is based on very sparse data, and material inaccuracies in these models are possible. The loss probabilities generated by the models are not predictive of future hurricanes, other windstorms, or earthquakes or other natural catastrophes, but provide estimates of the magnitude of losses that may occur in the event of such natural catastrophes. Aon Benfield makes no warranty about the accuracy of the IF models and has made no attempt to independently verify them. Aon Benfield will not be liable for any special, indirect or consequential damages, including, without limitation, losses or damages arising from or related to any use of or decisions based upon data developed using the models of IF. Additional Limitations of Impact Forecasting, LLC The results listed in this report are based on engineering / scientific analysis and data, information provided by the client, and mathematical and empirical models. The accuracy of the results depends on the uncertainty associated with each of these areas. In particular, as with any model, actual losses may differ from the results of simulations. It is only possible to provide plausible results based on complete and accurate information provided by the client and other reputable data sources. Furthermore, this information may only be used for the business application specified by Impact Forecasting, LLC and for no other purpose. It may not be used to support development of or calibration of a product or service offering that competes with Impact Forecasting, LLC. The information in this report may not be used as a part of or as a source for any insurance rate filing documentation. THIS INFORMATION IS PROVIDED AS IS AND IMPACT FORECASTING, LLC HAS NOT MADE AND DOES NOT MAKE ANY WARRANTY OF ANY KIND WHAT SOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THIS REPORT; AND ALL WARRANTIES INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY DISCLAIMED BY IMPACT FORECASTING, LLC. IMPACT FORECASTING, LLC WILL NOT BE LIABLE TO ANYONE WITH RESPECT TO ANY DAMAGES, LOSS OR CLAIM WHATSOEVER, NO MATTER HOW OCCASIONED, IN CONNECTION WITH THE PREPARATION OR USE OF THIS REPORT.

Proprietary & Confidential

32