Loss history inadequate for rating mega weather events

Swiss Re’s latest annual hurricane report says that changing social, economic and weather patterns makes the use of loss history an inadequate rating tool when determining the risk and cost of large weather related events such as hurricanes. The report notes that 2004 hurricane season generated greater storm losses in the U.S. and Caribbean, totaling US$20-$25 billion, than any other storm season in history. This year also saw record typhoon losses from Japan with an estimated insured cost of US$6 billion.
In this respect, loss histories cannot provide all the answers to the likelihood of future events in terms of both severity and frequency when faced with the unknown impact of climatic variation, combined with the rapid movement of people and therefore assets to coastal areas. "Event-based risk analysis" is required to better determine the risk profile involved with mega storms of the future, the Swiss Re report observes. This is achieved through computer risk modeling, which the reinsurer says that it began work on an event-based computer model in 2002. The model has since simulated the life cycles and loss effects of 500,000 individual hurricanes in the North Atlantic. "In the event-based method, the amount of individual events modeled ensures that practically every imaginable combination of storm trajectory and intensity is factored in," the report says.