Forecasting Disaster

In response to the devastation caused by the 2005 hurricane season in the United States, Benfield, a London-based reinsurance and risk intermediary, in partnership with Tropical Storm Risk, an independent research organization based at University College London, developed ReMetrica, a new modeling methodology to help carriers with investments affected by the weather in the U.S. manage risk effectively. "This is the first time a model will reflect the latest seasonal U.S. hurricane forecasts with applications to insurance catastrophe models," contends TSR's Mark Saunders, a professor at University College London.

The ReMetrica model enables risk carriers to adjust the assessed loss probabilities of standard peril models to the latest seasonal U.S. hurricane forecasts, according to Benfield. By adjusting the risk model, insurers are more likely to gauge the risk of insured losses accurately, explains Saunders. "If insurers had acted on these forecasts, they could have adjusted their rates and the volatility of losses for this season," he asserts.