[[Actuarial Notes Wiki|Wiki]] / [[Exam 5 (CAS)]] / **Catastrophe Loss** ## Definition ==Catastrophe Loss== is a single event or series of related events that produces multiple claims with significant aggregate losses, such as hurricanes, earthquakes, tornadoes, or other natural disasters. ## Characteristics - Single event causes many claims - Low frequency, extremely high severity - Affects multiple policies simultaneously - Geographically concentrated - May be excluded from ratemaking base rates ## Examples - Hurricane damage - Earthquake - Tornado outbreak - Wildfire - Flood - Hailstorm - Winter storm ## Treatment in Ratemaking ### Separate CAT Loading ``` Base Rate (excluding CATs) + CAT Load = Total Rate CAT load based on: - Historical CAT frequency - Modeled CAT exposure - Geographic concentration - Risk appetite ``` ### Exclusion from Base ``` Remove CAT losses from experience: - Identify CAT events - Exclude from loss experience - Calculate non-CAT rate - Add separate CAT provision ``` ### Full Inclusion ``` Include if: - Sufficient volume to smooth - Geographically diversified - CATs are predictable - Regular occurrence ``` ## Example ``` Homeowners Rate Indication: Historical losses: $50,000,000 Including Hurricane X: $8,000,000 Options: 1. Exclude CAT: Use $42,000,000 for base Add separate CAT load based on models 2. Include: Use full $50,000,000 Appropriate if CAT exposure is normal Selected approach depends on: - Geographic concentration - Modeling capabilities - Regulatory requirements ``` ## CAT Modeling - Catastrophe models (AIR, RMS) - Probabilistic loss estimates - Return period analysis - Geographic exposure concentration ## Related Concepts - [[Large Loss#Definition]] - [[Extraordinary Loss#Definition]] ## References - Werner & Modlin, Chapter 9