Hurricane season 2004: Unusual, but not unexpected
The number of events in the 2004 hurricane season is indeed unusual. However, thanks to the use of event-based risk analysis, this series of storms found Swiss Re well prepared.
With four major events, the 2004 hurricane season inflicted greater losses on the United States than any other storm season in history. At the same time, Japan was hit by an unprecedented number of typhoons. Are these storms the harbinger of global climate change, or merely a statistical blip? Does the insurance industry need to rethink its methods? Are today’s insurance and reinsurance structures capable of handling such events?
Swiss Re is among those leading reinsurers who have chosen an event-based approach to risk analysis and portfolio management. Its proprietary computer model has simulated the life cycles and loss effects of 500,000 individual hurricanes and grouped them into 50,000 so-called “hurricane years”.
Compared with conventional scenario models, the event-based approach facilitates a far more realistic risk analysis, and thus a more exact and differentiated calculation of premium rates. This in turn makes it possible to steer the business better and optimise – ie reduce – the amount of capital needed to back up a given risk.
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