Forecasting the cost of extreme weather events

Working with Tokio Millennium Re we have improved the forecasting of insurance losses in areas affected by extreme weather events.

Typhoon damage
Major typhoons can cause damage to property and business which amounts to millions of dollars

Tokio Millennium Re (TMR) is an international reinsurance company which covers the large pay-outs insurance providers have to make in the wake of catastrophic weather events.

Accurately projecting losses is a highly complex task full of uncertainties, but critical for TMR, as just one large typhoon can cause damage worth millions of dollars.

By carefully analysing large data sets, the IMI has improved the forecasting of potential insurance losses in areas affected by these massive storms.

Quantifying risk

Our team of mathematicians worked with TMR to better understand historical insurance claim data from two specific Chinese regions regularly affected by typhoons: Fujian and Guangdong. The regions are home to a number of major business parks which could be flooded or severely damaged if hit by a typhoon.

Alongside colleagues from the University’s Departments of Mathematical Sciences, and Architecture and Civil Engineering, we looked at reinsurance claim information dating back ten years. Using advanced statistical techniques, we were able to provide more precision to TMR’s simulation model which predicts future losses.

Improved insurance fund management

TMR incorporated our analysis to adjust the model output across their entire portfolio in China and gain a better understanding of the potential cost of their reinsurance products.

Having more accurate potential loss projections also allowed the company to improve its insurance funds management.

Forecasting losses seasons in advance

Impressed by the quality of IMI’s work, TMR commissioned us for a second data modelling project a year later.

Merging records from all typhoons that have hit the Chinese regions since the 1950s with additional environmental variables, our team was able to develop a new and more accurate prototype loss simulation model based on real-world data.

Our additional analysis has given the company an even more accurate understanding of the reinsurance risk they are exposed to, allowing them to further improve their management of insurance funds.

‘Gaining a better understanding of the models we use is a strategic pillar at TMR. By choosing to collaborate with the IMI we were able to perform a deeper and broader analysis than what we could have done with internal resources alone.’
Marco Lo Giudice, Vice President of Catastrophe Pricing at TMR

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