The record-breaking 2004 hurricane season led to a much greaterfocus on aggregate risk, which will prompt changes in catastropherisk assessment, Randall Brubaker, senior vice president of AonCorp., told attendees at a recent Casualty Actuarial Societymeeting.

Brubaker noted that companies buying reinsurance are much moreinterested in understanding aggregate probable maximum losses thanthey were before. Up until last year, most of the hurricanes weremissing the United States coastline, but a shift in the upperatmospheric weather patterns resulted in above-average U.S.landfalls.

“Last year, we had a ridge of high pressure in the East thatcaused the hurricanes to get pulled further west into the Caribbeanbefore turning north,” he said. “That's what caused them toconverge on Florida.” The question, he continued, is whether thisis a trend. “Is this going to continue and be something that we'regoing to see several seasons in succession? I don't think anybodyknows that; at least if they do, they aren't saying anything.”

Hurricanes Charley, Frances, Ivan, and Jeanne resulted inestimated losses of $22.8 billion, according to Property ClaimService figures. Although any single hurricane is not an unusualevent, the occurrence of four in one season is rare. Initially, thefour events had led to wide-ranging loss estimates amongcatastrophe modeling companies, and actual losses differed incertain areas.

Because of this, Brubaker anticipates a number of revisions tocatastrophe models in the next two years. Adjustments forfrequency, damageability ratios at lower wind speeds and for selectconstruction types, and a review of demand-surge functions based onseason losses, rather than individual occurrences, can be expected,he said.

Brubaker also predicted a greater focus on the quality andcompleteness of exposure data for catastrophe models in the monthsto come. “We probably are going to see more effort and disciplineabout putting together exposure data for catastrophe modeling,” hesaid.

The effects of last year's unprecedented season on thereinsurance market were relatively slight, according to ThomasHettinger, managing director of EMB America. In the last ninemonths, the reinsurance market has reacted differently from thepost-hurricane Andrew period. In the past, after an event, themarket would harden.

“Actuaries have developed more sophisticated catastrophemodeling techniques that have become core tools for helpingcompanies understand their risks,” said Hettinger.

Last season's four hurricanes have led to a shift away from thetraditional approach to buying reinsurance, however. “This openedpeople's eyes to what could happen,” he said. “In the past, peoplewere not that worried about aggregate events. Now in Florida, manycarriers are considering at least what would happen if there weretwo events.”

Specifically, carriers are looking at what happens when theFlorida Hurricane Catastrophe Fund is used up, the speed of paymentfrom the fund, and potential gaps in coverage created due to secondevents and the timing of payments, he said.

An ongoing process of change and improvement is occurring incatastrophe modeling. Carriers need to use company enterprise riskmodels, with catastrophe model output as a core component,Hettinger recommended. “Take this as a wake-up call to pushmodeling to help you,” he said.