Tracking Super Cats

The devastating effects of Hurricane Katrina will prompt more insurers to work with super catastrophe, or Super Cat, modeling, according to Newark, Calif.-based Risk Management Solutions (RMS), a catastrophe risk modeling solutions provider. A report by RMS that explores the implications of Hurricane Katrina on catastrophe modeling suggests that the severity of the 2005 hurricane season will increase awareness among insurers of Super Cats. Additionally, the report notes, this year's storms have provided data to help build more-thorough risk management tools in the future.

Super Cats are characterized by damage on a massive scale that gives rise to nonlinear loss amplification, correlation and feedback, explains Paul VanderMarck, executive vice president of RMS. "Katrina is a demonstration of various sources and causes of loss that are not typical for your everyday catastrophe, but these situations aggregate losses," he says. "Super Cats [provide] a distinct set of modeling lessons that, as we move forward, we must include in modeling."

By developing Super Cat models, risk managers will have a better handle on controlling potential losses after a disaster, according to VanderMarck. "Katrina is an important reminder that models are just that - models," he says. But, "They are an incredibly important tool and vital for prudently managing and understanding catastrophe risk."