1. Catlin Group Limited 1 Challenges in Environmental Risk Management Insurance Dr Michael Maran Chief Science Officer Catlin Group Limited

2. 2 outline The emerging environmental challenges in the insurance sector: the needs of the insurance industry where there are gaps new services or products that might help to address these needs

3. Catlin Group Limited3 back to basics Fair Price Terms & Conditions Duty to Policyholders Duty to Shareholders

4. Catlin Group Limited4 the needs of the insurance industry Fair Price Terms & Conditions Duty to Policyholders “Fair Price”  Equitable  Price reflects Risk Risk = f (Hazard, Exposure, Vulnerability) Hazard = f (Frequency, Severity, [duration etc] ) Duty to Shareholders

5. Catlin Group Limited5 Frequency / Severity low severity high high frequency low

6. Catlin Group Limited6 precision v accuracy True value

7. Catlin Group Limited7 the gaps data understanding the uncertainties timescales rare extreme events event dependency and correlation

8. Catlin Group Limited8 data relevant accurate verifiable usable volume

9. Catlin Group Limited9 understand the uncertainties know the rules be wary of unknown factors use but do not rely on the past

10. Catlin Group Limited10 timescales Days Weeks Months Years Decades Loss Mitigation Policy Formulation Business Planning

11. Catlin Group Limited11 rare extreme events

12. Catlin Group Limited12 Event dependency and correlation Insured events are generally considered as independent events In most cases this is probably true – or is it? Do we recognise when they are not independent? How do we identify and measure dependency? –Earthquakes: When do quakes stop being defined as aftershocks? –What about weather? How do we view independent but correlated events? –e.g. US Hurricanes and Australia drought

13. Catlin Group Limited13 Threat correlation http://risk.jbs.cam.ac.uk/ University of Cambridge Judge Business School Centre for Risk Studies

14. Catlin Group Limited14 new products and services How good is the data? –Is it raw / cleaned ; accurate ; verified ; up to date? Can we still use historical data? –Assessing the validity of historical data in a changing world Do we understand the uncertainties? –Are we getting / giving the full picture? How should we deal with dependant and correlated events? How good are the models? –Are we trying to be too clever? –Is there a better way?

15. Catlin Group Limited15 Are models always right or always wrong? Model of an elephantThis is not an elephant

16. Catlin Group Limited16 FeatureActualModel Shape Curves Symmetry Curves Symmetry TextureBasically smooth Wrinkly Basically smooth Wrinkly Size~ 6m~ 0.1m ( Electron : Universe ~ 10 -15 m – 10 27 m ) Mass~ 5,500 kg~ 15g ( Electron : Universe ~ 10 -30 g – 10 55 g ) ColourGreyWhite ( not R O Y G B I V ) CompositionC ; H ; O > 90% mass > 50% Water e.g. PLA (C 3 H 4 O 2 ) n Can contain water An elephant

17. Catlin Group Limited17 Models are not wrong But are they the best answer? An incomplete set of equations Using uncertain parameters We need another way There is another way The challenge is to find it

18. Catlin Group Limited 18 Q & A