Faculty of Actuarial Science & Insurance Seminar with Dr Shree Khare

Abstract

We start by discussing how natural catastrophe risk models are used in the re/insurance value chain, and recent work to quantify the effects of climate change. We then review various commonly discussed loss perspectives (AEP, OEP, CEP, EEF), before providing the definition of the order statistics, making clear their importance in re/insurance. Next, a proof of the general formula for the order statistics is provided, after which we discuss the application of the formula to the canonical frequency distribution  (the combination of the Negative Binomial, Poisson and Binomial). We then visualize how the order statistic exceedance probabilities change under alternative model assumptions, yielding insights as to how reinsurance pricing metrics may change under alternative climates. Finally, we review experiments with a toy catastrophe model which yields insights into the role that the order statistics play in reinsurance pricing metrics. This talk is based on two recent peer reviewed publications which will be referenced in this talk.

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