NAIC Catastrophe Modeling Subgroup Meeting Report: January 8

Jan 12, 2009

On Thursday, January 8, 2009, the National Association of Insurance Commissioners (“NAIC”) Catastrophe Modeling Subgroup (“Subgroup”) of the Casualty Actuarial and Statistical Task Force met to discuss an American Academy of Actuaries (“AAA”) Issues Brief (“Issues Brief”) and other related items.

The American Academy of Actuaries’ Natural Catastrophe Subcommittee (“AAA Subcommittee”) recently released the Issues Brief entitled “Current Issues in Insurance Ratemaking for Catastrophic Events,” which can be viewed by clicking here.

The Issues Brief includes:

  • An overview of ratemaking issues associated with relying on historical data
  • Some approaches used to validate catastrophe models
  • Select issues regarding the use of models in rate filings
  • A few issues associated with the cost of reinsurance when determining rate filings

According to the AAA Subcommittee, complex computer models are necessary to catastrophe insurance ratemaking and their use should not be prohibited or limited by state regulators. 

Meeting attendees expressed concern about a possible conflict of interest resulting from Issues Brief contributions made by AAA Subcommittee members who are insurance company actuaries rather than uninterested parties.  Greater disclosure of contributing AAA Subcommittee members’ employment status and a more balanced approach on the creation of catastrophe models were suggested as remedies for the perceived conflict of interest in future studies.

Subgroup member Tom Hess (OH) expressed concern about historical data versus catastrophe modeling for hurricanes and other wind events.  Mr. Hess stated he would like wind events other than hurricanes to be addressed more extensively, particularly for states like Ohio that may not necessarily experience hurricanes. 

A representative from the AAA stated that comments on the Issues Brief are welcome from regulators and interested parties and any comments may be submitted directly to the AAA.

Chairman John Purple (CT) gave an update on a request he had made to the Actuarial Standards Board regarding catastrophe pricing models and requested that they be evaluated to determine if updates are needed.   

A representative from the Actuarial Standards Board stated that, after review, the existing catastrophe pricing model standards were determined to be sufficient.  As written, the standards are very general, and although there are issues with practical application of catastrophe pricing models, catastrophe model standards are not the correct vehicle for addressing those issues.

The Actuarial Standards Board currently is working on educational papers for catastrophe pricing model standards, because the models are now widely used and the need for further education has been recognized.

Chairman Purple informed the Subgroup that development of a NAIC National Catastrophe Model (“Model”) was approved during the NAIC Winter 2008 National Meeting.  Expected to be similar in form to Florida’s Public Hurricane Loss Projection Model, this national-scale Model will include information for personal lines insurance and encompass hurricanes, earthquakes and tornadoes.

The meeting was then adjourned.


Should you have any questions or comments, please do not hesitate to contact Colodny Fass.


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