NAIC Catastrophe Modeling Subgroup Meeting Report: February 23

Mar 3, 2009

On Monday, February 23, 2009, the National Association of Insurance Commissioners (“NAIC”) Catastrophe Modeling Subgroup (“Subgroup”) of the Casualty Actuarial and Statistical Task Force met and discussed developments at the recent Reinsurance Association of America conference (“RAA Conference”) entitled “Cat Modeling 2009:  Catastrophe Modeling in Uncertain Times.”   To view the RAA Conference agenda, click here. 

Also discussed was the need for revisions to certain questions listed in the NAIC 2001 Catastrophe Computer Model Handbook (“Handbook”) relating to the effect of computer models on individual States’ insurance rates.  The Handbook explores issues arising from the use of computer catastrophe models and includes detailed information about specific modelers, state and modeler contacts, enacted state legislation, the Florida Hurricane Catastrophe Fund and the California Earthquake Authority. 

It was cautioned that, in editing the current Handbook questions, Subgroup members should consider its primary focus:  to provide regulators with catastrophe model pricing and rate guidelines. Providing answers to any related topics should be addressed in the context of Handbook questions, but should not become its focus. 

Proposed revisions to the Handbook’s questions from Subgroup members must be submitted to the NAIC by March 4. 

During a meeting of Pilot States at the RAA Conference, it was suggested that the Florida Public Hurricane Model be used as a base for any future proposed national catastrophe models.   Also at the RAA Conference, subcommittees were formed to provide reports on technical issues relating to hurricane and earthquake modeling.  Legal and regulatory issues relating to computer modeling also will be reviewed by the groups.   These subcommittees will meet in March 2009, and, along with the Pilot States group, are expected to deliver their reports to the NAIC Executive Committee during its June 2009 meeting. 

The Subgroup meeting was then adjourned. 

Issue Background from NAIC meeting minutes:  

March 31, 2008-The NAIC Casualty Actuarial Task Force charged the Catastrophe Issues Group with focusing on aspects of how catastrophe models are used in pricing, and how reinsurance and catastrophe costs are allocated.  It is expected that the Catastrophe Issues Group will provide some updated direction to aid the regulatory review of catastrophe modeling, which would likely include an update to the questions regulators can ask that are included in the Catastrophe Computer Modeling Handbook, 2001. The Casualty Actuarial Task Force will coordinate this work with the Catastrophe Insurance Working Group. In addition, the Task Force will ask the American Academy of Actuaries to update its Catastrophe Monograph and the Actuarial Standards Board to update their standard on catastrophe modeling.  There is potential to receive an additional charge from the C Committee in its work with focus on modelers and the oversight of the development of the modeling. Interested parties expressed concern that there might be a disconnect in regulatory requirements if companies are asked to use a model to determine a risk-based capital charge for catastrophes, but are not allowed to use that same model to develop rates. 

June 2, 2008–The Catastrophe Issues Group, with focus on aspects of how catastrophe models are used in pricing and how reinsurance costs and catastrophe costs are allocated to different states, develops a work plan and assigns tasks to members. A main product of the issues group is expected to be an update to questions in the NAIC’s Catastrophe Computer Modeling Handbook (2001) that regulators can ask regarding catastrophe models used in rate filings. The Issues Group is also aware of other catastrophe modeling work being completed at the NAIC and received an update on the work of the P&C risk-based capital Working Group to include a catastrophe load provision in the risk-based capital formula. 

December 22, 2008–Catastrophe modeling continues to be discussed by the Subgroup. The American Academy of Actuaries recently submitted a related issues brief, but the Actuarial Standards Board declined to update its Standards of Practice. The Task Force is hoping to organize some catastrophe modeling training for regulators.


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