Insurers and reinsurers begin the dance of cat-exposure estimation by plugging their books of business into a model, often averaging the results with those from one or more of the other available models from the three primary providers: AIR Worldwide, EQECAT (EQE) and Risk Management Solutions. They then incorporate calculations and indications from their own internal models, if they have them.
Following this output of data, companies choose the result that best suits the purpose of the modeling exercise—to purchase reinsurance, to please rating agencies, or to convince regulators that they needs to hike prices, experts explained.
Jayant Khadilkar, a partner at privately held reinsurance broker and risk/capital management advisor TigerRisk in Stamford, Conn., said companies need a thorough understanding of what goes into the model, how they work, and how to translate the results.
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