TECHNICAL PROPOSAL FROM GUY CARPENTER & COMPANY, LLC
FLOOD INSURANCE RISK STUDY
SOLICITATION NUMBER HSFE60-13-Q-0006
Guy Carpenter & Company, LLC 1166 Avenue of the Americas New York, NY 10036 Fax +1 212 345 4808 www.guycarp.com
Guy Carpenter & Company, LLC 1166 Avenue of the Americas New York, NY 10036 Fax +1 212 345 4808 www.guycarp.com
August 23, 2013
U.S. Department of Homeland Security
Federal Emergency Management Agency
395 E Street SW
Washington, DC 20020
RE: Technical Proposal from Guy Carpenter & Company, LLC
Request for Quotes: Solicitation Number HSFE60-13-Q-0006, Flood Insurance Risk Study
Dear FEMA:
Guy Carpenter & Company, LLC (GC), with support from other Marsh & McLennan Companies
including Oliver Wyman Group (OW) and Marsh Inc. (Marsh) as well as third-party
subcontractors AIR Worldwide (AIR) and Jeremy Benn Associates Limited d/b/a JBA
Consulting (JBA), is pleased to provide a response to the Request for Quotes (RFQ) issued in
relation to solicitation #HSFE60-13-Q-0006, the Flood Insurance Risk Study (FIRS) project
rising out of Section 100232 “Reinsurance” of the Biggert-Waters Flood Insurance Reform Act
of 2012.
The team of professionals brought together by GC to respond to the RFQ, bring an incredibly
broad diversity of expertise, talent and professional insight that spans the (re)insurance, capital
and financial markets. When coupled with the technical expertise of AIR, JBA, GC and Marsh
around the subject of natural catastrophe risk management and the peril of flood, we believe this
team is very well positioned to assist FEMA evaluate the broad array of very challenging issues
confronting the NFIP.
This component of our offer is comprised of our Technical Proposal, Corporate Profiles, Past
Experience / Referrals, and Biographies. A separate document has been submitted that
addressed the “Business Proposal” as requested under the RFQ. The offer provided and
described through these two documents will remain open for 90 days and can be extended
subject to the mutual agreement.
Should there be any questions regarding this material, please contact us. We look forward to
hearing from FEMA in due course.
Sincerely
Jonathan B. Clark
Managing Director
(917) 937-3011
Guy Carpenter & Company, LLC 1166 Avenue of the Americas New York, NY 10036 Fax +1 212 345 4808 www.guycarp.com
Guy Carpenter & Company, LLC 1166 Avenue of the Americas New York, NY 10036 Fax +1 212 345 4808 www.guycarp.com
Contents Acronyms ..................................................................................................................................................... 3
Executive Summary ................................................................................................................................... 1
Technical Approach and Methodology.................................................................................................... 2
A Reinsurance Study ......................................................................................................................... 2
A.1 Current Market Assessment ................................................................................................. 3
A.2 Historic Market Assessment ................................................................................................. 4
A.3 Reinsurance Cost-Benefit Analysis ..................................................................................... 6
A.4 Compile All Reinsurance Study Reports............................................................................. 8
B Research to Identify Reasonable Options for Privatizing the NFIP ........................................ 8
B.1 Studies to Identify Reasonable Options for Privatizing the NFIP .................................... 8
C Development of a Robust Flood Insurance Financial Model ................................................. 13
C.1 Recent Developments in US Flood Insurance Modeling ............................................... 14
C.2 Flood Model Specifications ................................................................................................. 16
D Preparation of Studies and Analyses ........................................................................................ 24
E Internal Coordination Support .................................................................................................... 25
i/ii/iii Project Management / Monthly Progress Reporting / In-Person Meetings ................. 25
Acronyms Table B-W – Biggert-Waters Act
DHS – Department of Homeland Security
DRA – Disaster Risk Assessment
DRF – Disaster Risk Finance
DRM – Disaster Risk Management
DRR – Disaster Risk Reduction
FEMA – Federal Emergency Management Agency
FIMA – Federal Insurance and Mitigation Administration
FIRS – Flood Insurance Risk Study
FIRS – Flood Insurance Risk Study
GC – Guy Carpenter & Company, LLC
JBA – JBA Consulting
MID – Guy Carpenter’s Market Information Department
MMC – Marsh and McLennan Companies
NFIP – National Flood Insurance Program
PWS – Performance Work Statement
RFQ – Request for Quotes
ROL – Rate On Line
SST – Sea Surface Temperature
XOL – Excess of Loss
1
Executive Summary Guy Carpenter, alongside Oliver Wyman, Marsh, AIR and JBA, is uniquely positioned to provide valuable advice and insight across each section of FEMA‘s Performance Work Statement (PWS) relative to the FIRS RFQ. Our team will draw heavily from resources across the corporate structure of the Marsh & McLennan Companies (MMC). To supplement our firm‘s resources we will partner with AIR and JBA Consulting, both firms we have worked with successfully on past projects. Collectively, this project team – described in Figure 1 and the text below – will provide an unparalleled breadth of technical knowledge and insight that spans the (re)insurance and financial markets.
Figure 1: Representative structure of contractor consortium proposed to conduct work described under FIRS RFQ.
Guy Carpenter: a global reinsurance intermediary with over 90 years of experience providing integrated solutions to the (re)insurance industry.
Oliver Wyman: a global management consulting firm with a deep understanding of evolving market structures, economics, and regulatory trends.
Marsh: a global leader for over 140 years in insurance broking & risk management.
AIR Worldwide: a global leader in catastrophe modeling with over 25 years of experience assessing the impact of natural perils on property and life.
JBA Consulting: an international leader in hydrological modeling focusing on public / private sector entities outside of and within the insurance industry.
GC will act as the lead contractor providing FEMA a single point of access to the project team. The Key Personnel named in our bid – the lead Project Manager and Actuary, as well as designated back-ups – are all employed by GC. GC is ideally suited to assuring the completion of the various desired technical studies with the utmost thoroughness, accuracy and integrity. Evidencing this ability is the company‘s robust experience working with public-private insurance company clients similar to NFIP across the globe, details of which are provided in this proposal.
Based on the project specifications put forth by FEMA, we anticipate the following resource commitment to deliver the required services in the stipulated project time-frame:
Resource Summary by Main Task
Task Total Person Days Task Lead Task Support
A – Reinsurance Study 172 GC AIR
2
B – Privatization Study 160 OW GC/Marsh
C – Financial Model 874 AIR GC/JBA
D – Studies 0 (included above) GC All Subs
E – Support 60 GC All Subs
Grand Total 1,266 GC -
Technical Approach and Methodology Our technical approach to completing FEMA‘s desired outputs is described herein. Our proposal follows the tasks outlined in FEMA‘s PWS included in its RFQ dated July 25, 2013. Detailed subtasks have been added.
A Reinsurance Study Given its standing as a leading risk and reinsurance specialist and a leading source for reinsurance market information worldwide, GC is uniquely suited to the development of a comprehensive and accurate reinsurance study for NFIP. Evidencing this further is the company‘s unrivaled market presence (see accompanying Corporate Experience document for reference).
GC‘s corporate structure facilitates its ability to translate the technical and market knowledge it acquires from its daily business activities into workable intelligence for its client‘s. GC has dedicated line-of-business Specialty Practices that focus on navigating the emerging market trends and challenges our brokers and clients must face daily. In addition, GC employs a dedicated Business Intelligence unit that helps gather and disseminate this knowledge internally and via external media. In particular the firm is cited broadly for its regular in-depth commentary related to property catastrophe market conditions and capacity. The following sections outline our capabilities and resources available to support the completion of related deliverables.
To provide NFIP with sufficient information to assess the prospects of accessing reinsurance to cover its portfolio risk we will need to thoroughly understand and convey the present, past and potential future market dynamics which affect this decision. To do so we will we will follow the process to complete this study outlined in Figure 2 and described in the subsequent text.
Figure 2: An outline of Consultant’s proposed process for studying the past, present and future market conditions under which NFIP might obtain reinsurance.
3
A.1 Current Market Assessment The reinsurance market has undergone significant change since early 2012, experiencing dynamic growth due in large part to an influx of so-called ―convergence capital‖ from institutional investors seeking access to the reinsurance space. This surge in capital over the last 18 months is changing the nature of the sector‘s capital structure as investors supply capacity through both alternative and traditional vehicles. This has exerted significant downward pressure on reinsurance pricing, particularly in peak catastrophe areas such as Florida by delivering a cost competitive source of risk transfer in some segments. Traditional reinsurers have been forced to respond in order to defend their market share. In our current market report GC will explore the growing intersection between the reinsurance and capital markets in some level of detail.
While most of the private capacity to support NFIP‘s risk is likely to be indemnification based, and to come from traditional (re)insurers and placement structures (e.g. Catastrophe XOL), there are some other segments of the secondary risk transfer market that bear further exploration as well. In particular the ongoing evolution and increasing prevalence of parametric risk transfer solutions such as cat bonds to hedge both primary and secondary risks offers significant promise. Given the reinsurance industry‘s highly sophisticated understanding of catastrophe risk and the increasing volatility of certain hazards, reinsurers have been some of the most ardent adopters of parametric risk transfer solutions both as sponsors and as risk-bearing counterparties. Most often such solutions are used to hedge peak or difficult to quantify risks.
In addition to the parametric solutions that are utilized extensively by providers of alternative catastrophe reinsurance products, the weather-derivatives market, which mainly serves non-(re)insurance corporations and to date has focused on the energy sector, represents an additional approximately US$12 billion of parametric risk capacityi. While most of this risk transfer product is purchased by energy companies in developed world markets, a growing share of weather-related transactions is being developed and deployed in other sectors, such as agriculture, food and beverage, apparel, and financial services.
There is also some significant index-based insurance activity in the microinsurance market, where many pilot programs employing catastrophe indexes have been initiated in recent years to support the economic development of smallholder farmers and micro-entrepreneurs. Borrowing innovations from each of these markets to streamline flood insurance product distribution and improve coverage affordability will serve to gradually minimize the entry of uninsured flood losses into the national economic system at all levels—governmental, institutional, and individual. The following sections (A.1.a-A.1.d) outline GC‘s methodology for a thorough assessment of the current market‘s capacity to assume US flood risk from/for NFIP.
A.1.a Develop Approved Marketing List In order to determine the appetite of the private (re)insurance and capital markets to assume US flood risk it will be essential to canvass a representative swath of participants in each market segment regarding their related interest and ability. In putting together this marketing list GC would consult with FEMA to identify any concerns related to counterparty security (e.g. credit ratings and capital position) and acquire adequate information from its MID to inform this conversation. A sample of what this information might look like can be seen in Figure 3.
4
Figure 3: Sample marketing list (Source: GC MID).
A.1.b Develop Approved Marketing Materials In consultation with NFIP GC will work to compile relevant high-level information regarding NFIP‘s past, current and potential future portfolio in order to place our current market assessment into appropriate context. Care would be taken to ensure the amount and detail of information provided does not elicit any confidentiality concerns from NFIP though sufficient to engender meaningful conversations with risk transfer counterparties around their US flood risk transfer requirements and appetite. NFIP will be given the opportunity to explicitly approve any documents or information prior to such discussions.
A.1.c Conduct Market Assessment GC will canvass market participants for their input with respect to US flood risk underwriting and capacity. Such an assessment will take place via a variety of means including phone conversations, email exchanges and in-person meetings. GC will supplement this live market survey with desk research around market capacity for flood risk generally, some of which will overlap with work conducted for task A.2.
A.1.d Write Current Market Assessment Report Given the strength of our existing relationships with markets we are ideally situated to obtain the information required from reinsurers and other potential risk transfer counterparties for NFIP to complete the current market study. Pulling together the information gathered in A.1.c we intend to quantify as best as possible the extent of market capacity and the strength of market appetite for US flood risk and to convey our findings as concisely as possible.
A.2 Historic Market Assessment GC has been conducting business for over 90 years in the reinsurance sector. The Excess of Loss (XOL) reinsurance structure – the most prevalent risk-transfer structure in the natural catastrophe market worldwide – was actually developed by our firm in the 1940‘s. GCA has evolved and grown in tandem with the advent of risk modeling since the ‗80s. GC has been at the forefront of market innovation in the reinsurance sector at every step. Not only do we have the data to perform the appropriate historic assessment for the NFIP, we are in a better position than anyone else to put the market‘s evolution in context.
A.2.a Historic Market Research As a major trading partner to reinsurers all over the world we collect valuable data as a matter of course from our regular daily operations. To supplement this general information we will endeavor to collect detailed information relative to flood risk in particular from all of the subcontractors on this bid engaged in various aspects of the flood risk transfer market domestically and abroad. The database gathered during this phase will be as comprehensive as possible given the market reach of GC and its subcontractors, serving to inform all subsequent project phases.
A.2.b Analysis of Historic Market Capacity/Pricing Figure 4 shows the latest iteration of GC‘s Global Reinsurance Composite tracking the growth of shareholders‘ funds over the last 15 years across a variety of market cycles.
Short Name Long Name Rating Date Rating Date Rating Date (USD) mn Date
Munich Re Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München Aa3 4/4/2003 AA- 12/22/2006 A+ 10/11/2010 21,019 12/31/2011
Swiss Re Swiss Reinsurance Company Ltd. A1 2/23/2009 AA- 10/28/2011 A+ 12/20/2011 18,823 12/31/2011
SurplusAM BestS&PMarket Moody's
5
Using such information which the firm collects during the regular course of its operations, GC will be able to conduct an in depth qualitative and scenario-based analysis of NFIP‘s ―as-if‖ historical ability to obtain reinsurance considering various macro market conditions.
Figure 4: Long-Term Evolution of Shareholders‘ Funds for the GC Global Reinsurance Composite (Source: GC,
company information)
In addition to traditional reinsurance capacity, GC tracks reinsurer catastrophe loss activity on a quarterly basis to ensure the most current data is available to clients to help them predict as best as possible future market trends. GC Securities also tracks alternative risk transfer capacity development over time. Such alternative capacity takes various forms including catastrophe bonds, collateralized reinsurance, retrocession and industry loss warranties. Figure 5 shows the capacity dedicated to each alternative product type. Figure 6 shows the growth of alternative secondary risk transfer capacity against traditional capacity indicating the ongoing convergence of the two markets.
Figure 5: Global Property Catastrophe Reinsurance
Limit by Source (USD, bn) (Source: GC Property Specialty and GC Securities).
Figure 6: Alternative Capacity as a Percentage of
Global Property Catastrophe Reinsurance Limit (Source: GC Securities).
Property catastrophe reinsurance capacity and pricing are of course interrelated. Using a common broad characterization of reinsurance market dynamics, fluctuations in average price are susceptible on one side to large (re)insured catastrophe losses which have a material impact on reinsurer capital levels (price increases) and on the other side to large amounts of unused capital (price decreases). A chart demonstrating the
$268
$16 $13 $10 $6
Traditional Reinsurance
Catastrophe Bonds
CollateralizedReinsuranceRetrocession
Industry LossWarranties
0%
5%
10%
15%
20%
Pro
po
rtio
n o
f A
lte
rnat
ive
Cap
acit
y
6
historical fluctuation of global property catastrophe reinsurance pricing and its response to prevailing, potentially ‗market-moving‘ events are shown in Figure 7.
Figure 7: GC Property Global Catastrophe Reinsurance Rate-on-Line Index: inferring pricing cycles and stabilization from history (all losses in 2012 USD) (Source: GC).
A.2.c Analysis of Projected Market Capacity/Pricing While long-term projections regarding reinsurance market dynamics are difficult to make with any degree of accuracy, we can say from our deep historical knowledge that property catastrophe reinsurance rates on-line typically take 2 to 3 renewals to ‗stabilize‘ depending on the sector‘s capital position and external factors (e.g. the reserving cycle, the macro-economy and capital markets). The reinsurance sector‘s capital is currently in an excess position which bodes well for stabilization, all other things being equal. Moreover, primary carriers are currently retaining more which should motivate reinsurers to be more competitive in the near-term. The potential for future growth in the ILS sector, both across existing highly concentrated catastrophe zones and potentially expanded applications, should have a further moderating influence on future post-loss price volatility. However, time is required to see how this dynamic plays out.
GC‘s knowledge of the reinsurance market cycle and its relationships with reinsurance market players give it unique insight into market and will enable us to develop for FEMA/NFIP a sound flood-specific analysis of likely future market capacity and pricing based upon current trends. This analysis will be informed by our risk-related thought leadership, our deep relationships with reinsurers and other secondary risk takers and our intimate understanding of market dynamics.
A.2.d Write Historic Market Assessment Report After all research and analysis has been completed we will summarize and compile all of our findings in a cohesive document for consideration by NFIP.
A.3 Reinsurance Cost-Benefit Analysis Typically reinsurance cost-benefit analyses are conducted after client-specific risk assessments have been completed. This allows for analytically rationalized/validated reinsurance structures to be compared against one another in anticipation of selecting which to test in the market. However, in completing this deliverable for FEMA/NFIP in line with the deliverable schedule included in the PWS, GC suggests a staggered approach which involves the completion of a generalized reinsurance cost-benefit analysis as described in this section (A.3) to be supplemented and perhaps replaced by
7
a specific cost-benefit analysis as described in section C.2.d. The generalized analysis will be based on hypothetical NFIP reinsurance structures and a representative set of macroeconomic market condition scenarios and will be targeted for completion at 180 days after project award. The specific cost-benefit analysis will be targeted for completion once the final flood modeling results have been completed.
A.3.a Define Future Market Scenarios The market for the secondary transfer of insurance risk is complex and defined by various market machinations. Using history as a guide (A.2.b) GC will work with FEMA/NFIP to define certain feasible future market conditions which may persist considering select industry catastrophic loss scenarios, reserve cycles and capital/investment trends. This will be informed by a rough historical correlation analysis between industry capital, property pricing and property catastrophe loss activity. With this market conditions ―model‖ established, we will then overlay certain loss scenarios including a base case (average loss year) and several ―market-turning‖ events such as a spike in interest rates, or two Category 3 hurricanes hitting Miami. A sample market condition model is shown in Figure 8.
Figure 8: Illustrative industry market conditions scenario framework as of July 31, 2013. Please note: this is a mental scenario-based exercise – the probabilities are not rigorously determined.
A.3.b Define Reinsurance Options The reinsurance options to be analyzed for this generalized cost-benefit report will be structured based upon a basic ―burn cost‖ (or purely experience-based) analysis of NFIP‘s loss history against various reinsurance structures and some qualitative research including conversations with NFIP around envisioned risk transfer levels. These structures will likely include traditional Catastrophe XOL reinsurance options, an Insurance Linked Securities (ILS) option (e.g. a cat bond) and a Quota Share option. More robust reinsurance structuring work will be conducted in C.2.d.
A.3.c Run Scenario Analyses of Market and Reinsurance Options Once representative sets of market condition scenarios and reinsurance options have been determined by GC and approved by NFIP we will work to analyze the pros and cons of each structure in each market scenario as well as to indicate potential impacts on pricing (cost of coverage) and capacity (ability to obtain adequate coverage).
8
This component may benefit from the use of the Reinsurance Decision Tool (RDT) explained further in C.2.d. While RDT is most powerful when fed the results of client-specific analyses, it can also be utilized in a more generalized way to analyze the benefits of various pro forma purchasing options in various market condition scenarios.
A.3.d Complete Narrative Assessment of Analytical Results Once the various scenarios and structures have been analyzed we will endeavor to assimilate and report our findings in a intuitive and concise manner.
A.4 Compile All Reinsurance Study Reports In this task GC will endeavor to link together in one cohesive document each of the three reports together comprising the proposed reinsurance study.
B Research to Identify Reasonable Options for Privatizing the NFIP
B.1 Studies to Identify Reasonable Options for Privatizing the NFIP Disaster risk has broad social implications. Historic take-up rates for extant, largely voluntary disaster insurance products including flood are low in the USii and may suffer from both adverse selection effects, whereby only the riskiest consumers or businesses buy cover, or moral hazard, where attempts to socialize the cost of cover to increase affordability mean that any individual has reduced incentives to manage their own risks. Moreover, while one might conclude that the risks are borne by those un(der)insured individuals and businesses exposed to disaster events, in practice uninsured catastrophe losses are often paid for in the form of ex post relief, recovery and reconstruction expenses, primarily supported by government. These economic losses have a direct fiscal impact on the sovereign entities in which the events occur.
In this way sovereign entities are different from private entities as their exposure to disaster losses extends well beyond damage to first-party property and into a variety of contingencies arising as a result of their unique fiscal, social and economic responsibilities to citizens. In addition to paying for damage to infrastructure and public buildings, as the effective ―insurers of last resort‖ governments are often left footing the bill for a number of otherwise unfunded disaster relief, recovery and reconstruction expenses. As a practical example, in the fiscal years 2011-13 the USG spent over $136B on such unplanned expenses, an average of nearly $400 per household per yeariii.
To further contextualize this risk, for five of the largest hurricanes impacting the US in the last decade, uninsured economic losses amounted to over $126B – over 50% of the total economic losses recorded for those events (Figure 9).
9
Figure 9: Insured and uninsured economic damage from select historical hurricane events; all losses shown in US$ when the loss occurred (no inflation adjustment applied); for these five events uninsured losses represented over 50% of total economic damage
iv.
The scale of this issue is significant and the cost to government is potentially unlimited. As a result FEMA is seeking an analysis of options for privatizing the NFIP. We propose to address the requirements in Section B of the RFQ through a 3-step process, as depicted in Figure 10 and described in the sections that follow.
Figure 10: An outline of Consultant’s proposed process for establishing and analyzing a list of privatization options alongside FEMA/NFIP.
B.1.a Foundation Setting The options for partial or full privatization of the NFIP are myriad, and involve a range of complex trade-offs. In particular, it is unlikely that a proposal can be found that fully satisfies the requirements of each of the stakeholders. Given this, in our view there are three key foundational considerations that need to be addressed in this review:
A. those characteristics which are most desirable of a national flood risk financing system, tailored to the desired outcome of which stakeholder group(s) (local and
$0
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
Katrina Sandy Ike Ivan Rita
Uninsured Economic Loss (000 US$)NFIP Insured Loss (000 US$)Other Insured Loss (000 US$)
10
federal government, individuals, (re)insurers, etc.) should bear the ultimate cost of flood losses;
B. which policy levers could feasibly be pulled to affect appropriate change and; C. the broader socio-economic implications of pulling those levers.
This will be the focus of our work in the first days of the project, using our existing conceptual frameworks for A. and B. as a starting point (detailed in Figure 11 and 12 respectively).
Figure 11: The desirable characteristics of a national flood risk financing system (right hand side) must be weighted by an explicit decision about who should bear the cost of future flood losses (Source: Oliver Wyman; GC)
There is a natural tension between some of the characteristics listed in Figure 11. The ideal system would satisfy as many as possible whilst not placing an unreasonable financial burden on any one stakeholder, nor creating any unwanted broader ripple effects. In order to tailor the weighting of these objectives to the NFIP context, it will be necessary to understand FEMA‘s ingoing perspectives on the desired (or acceptable) spread of future flood losses amongst the major stakeholder groups involved.
From a policy perspective, we believe that there are at least four axes underpinning the privatization options:
1) Pricing: Risk-Based vs. Subsidized 2) Take-Up/Penetration: Mandatory vs. Voluntary 3) Government Funding: Ex-Ante vs. Ex-Post 4) Scope: Single Peril vs. Multiple Perilsv
Each axis, in turn, consists of a full continuum of possible outcomes. For instance:
The pricing structure for a national flood risk financing program could be entirely risk-based or could offer subsidies to any number of policyholder subgroups.
11
Mandatory take-up could include any combination of enforcing (or incentivizing) insurers and homeowners to offer or purchase flood insurance respectively (mandatory opt-in, mandatory opt-out with tax implications for opting-out, etc.).
The Government funding role can be increased or decreased using a number of levers, from direct premium subsidies to backing a reinsurance pool.
Each of these policy decisions has manifold implications which can determine the achievement or exclusion of certain desirable program characteristics. Assessing these decisions in concert requires a robust multi-dimensional approach to comparative analysis. A graphic depiction of the three main policy decisions and the implied choice of flood risk financing system can be seen in Figure 12.
Figure 12: A three dimensional policy decision cube can help to determine the framework for a national flood risk financing program; the cube on the left shows each policy decision on a continuum allowing for free-form placement of each scheme option within the cube; the cube on the right replaces each dimension with a binary policy decision giving a more limited view of potential options – there are eight possible policy outcomes in this sample (Source: Oliver Wyman; GC).
In addition, each combination of policy levers implies not only a specific set of likely outcomes around who bears the cost of flood risk or events, but could also lead to broader impacts. For example, a full ―user-pays‖ system is likely to make the cost of owning property in a major flood area unaffordable, which would have significant consequences for communities in such areas.
In the first phase of the project we would refine and validate the above framework(s) with FEMA, as these will underpin the more detailed option development and assessment that follows. To support this effort, we will supplement our existing framework and thinking with additional research as follows:
Preliminary market signals from the reinsurance study
As previously described in the reinsurance study overview, we will be gauging the market sentiment as well as capacity to take on some or all of NFIP‘s risk. The findings from this work should provide useful information to either validate or eliminate potential privatization options from the long-list.
International/Domestic Case Studies
Another particularly useful input to the development of the reasonable option set will be examples drawn from domestic programs (e.g. state-specific disaster financing efforts), from other countries and, potentially, relevant examples of from other sectors (e.g. pensions, the individual mandate in healthcare, terrorism risk financing schemes, etc.).
12
A preliminary list of potential case studies appears in Box 1; we would agree the list of case examples to target in the early days of the project.
Box 1: Possible domestic/international public-private disaster risk financing case studies to inform US national flood risk financing system design
Mexico: FONDEN Taiwan: TREIF
Turkey: TCIP California: CEA
Caribbean: CCRIF US Eastern Seaboard: Misc. FAIR Plans
Romania: PAID Spain: CCS
New Zealand: EQC France: CCR
Australia: NDIR …
Having completed our research and adapted our framework to the specific circumstances under review, we will work with FEMA to carry out an initial winnowing of the list of potential options down to a reasonable set of options to be detailed in B.1.b.
B.1.b Research and Detailing of Reasonable Option Set In this phase of the privatization study we will detail each of the reasonable options and apply the assessment criteria agreed in B.1.a.
This work will consist of a mix of desk-based research of academic and trade literature, interviews with market participants (re/insurers, regulators), representative stakeholder groups and equivalent government bodies in other countries, as well as discussions with FEMA. We will compile these data and develop a profile of each option. We will compare each option against the criteria described in Figure 11 (as adapted for this research) as well as against the FEMA questions/items for consideration outlined on page 7 of the RFQ document.
Figures 13 and 14, show the results of a sample analysis performed by OW and GC for the Australian Treasury which had an in-going objective of reducing the burden on individuals through changes to the existing flood insurance system. This analysis utilized the eight-option cube shown in Figure 12 above:
Figure 13: Example summary assessment of different policy options for the Australian Treasury with an ingoing objective of reducing the burden on individuals (Source: Oliver Wyman; GC)
13
Figure 14: Example detailed assessment of a policy option for the Australian Treasury (Source: Oliver Wyman; GC)
The Proposed system has a number of advantages for each major group of stakeholders
This step would conclude with our sharing the preliminary findings with FEMA and, potentially, with a further winnowing of the option set.
B.1.c Complete Narrative Assessment of Analysis Results In this final step of the process we will document our findings in a report to FEMA. We envision two primary documents: a Word document written in narrative form that describes the process, assumptions and findings in detail; and a PowerPoint formatted document summarizing the key findings of the study. In both cases we will describe the long-list and the winnowing (and reasons why) as well as the assessment of each reasonable option. Both would be written with an external (to FEMA) audience in mind.
C Development of a Robust Flood Insurance Financial Model Until now FEMA‘s risk modeling efforts have been focused on risk rating using mainly historical claims and exposure data as the basis for rates and scenario-based loss assessment. These approaches to risk modeling, though valid and useful for underwriting and other purposes, do not paint a full picture of portfolio loss potential. Developing a sound technical probabilistic understanding of NFIP‘s portfolio risk is essential in order for FEMA and USG to evaluate potential related DRF options. It is also crucial to inform other portfolio risk management actions, especially DRR.
A probabilistic understanding of NFIP‘s portfolio risk can be achieved in multiple ways including empirical modeling (an actuarial study of past claims) and physical modeling (actual assessment of flood hazard using hydraulic and hydrological models). Physical modeling itself can be based on:
Deterministic modeling of specific scenarios
Accumulation modeling based on hazard maps (zonation)
Probabilistic modeling combining hazard mapping with a stochastic event-set
GC‘s opinion is that only a method that combines an empirical and a probabilistic physical model will provide a full depiction of the exposure of the NFIP to flooding. The reasons for this are many, though stated simply probabilistic models allow for the computation of a full loss curve which combines loss frequency and loss severity
14
estimates (Figures 15 and 16). They are generally used to analyze the potential of low-frequency high-severity events. However, to the extent such models do not cover all possible sources of flooding an empirical model is also needed to complement the physical model and provide a full picture of the flood hazard in a given location.
Figure 15: The special role of probabilistic models.
Figure 16: A sample probabilistic loss curve; such probabilistic model outputs can be used to make informed decisions around risk financing, risk retention and risk reduction (GC).
For example, each year there are a number of claims made to the NFIP for losses resulting from localized flood events such as cloud bursts which only affect a small number of buildings. These sorts of events are too small to be adequately captured by a physical model, but given sufficient experience data they can be accounted for on an empirical basis using actuarial techniques. Starting with completion of a study on the state-of-the-art of flood modeling this segment of our proposed project will conclude with a comprehensive probabilistic assessment of NFIP‘s flood risk.
C.1 Recent Developments in US Flood Insurance Modeling
The team who will assess recent developments in flood insurance modeling is:
GC: GC will supplement JBA and AIR‘s work with a particular focus on the storm surge hazard models available today through GC‘s current licensing arrangement with various commercial catastrophe model vendors. GCA has begun a model testing project of the Storm Surge models. The firm has done an extensive review of modeled loss versus actual loss for key clients in recent Storm Surge events and has developed modeling best practices for varying lines of business and regions as respects each vendor.
AIR: AIR has developed the most advanced probabilistic flood models for the worldwide (re)insurance markets over the last five years. The methodologies used include some of the most advanced techniques for event generation, where an event is defined as a precipitation event at any spatial scale. This technique uses a coupling of a global atmospheric circulation model (GCM) with a meso-scale numerical weather prediction (NWP) model to provide consistency of storm analysis across the global and regional levels. An advanced statistical disaggregation (downscaling) of NWP precipitation yields robust and realistic high-resolution precipitation patterns as input to river and surface water flood modeling.
JBA: JBA will focus on supplementing the team‘s understanding of the riverine component and will take the lead with respect to report writing. It will have support from Kevin Coulton (PE CFM), who has undertaken riverine and coastal flood insurance studies for FEMA since the mid 1980s and in more recent years has been involved in policy and protocol development for FEMA at a national
15
level within the Mitigation, Building Science, and Actuarial Divisions. He is also a very active member of the national Association of State Floodplain Managers.
Our comprehensive review will identify the current state of the art in terms of methods, tools and datasets for each of the four themes below and will consider developments in both the commercial and academic sectors. Where alternative approaches exist, we will draw on our own extensive practical experience and any quantitative performance indicators (e.g. from Government-endorsed benchmarking tests) to provide evidence-based recommendations of appropriateness for particular uses, most importantly financial modeling. As part of our review, we will also highlight the latest research and emerging technologies in each theme and identify remaining knowledge and data gaps and their implications for task C2.
C.1.a Review Recent Developments in Topographical Analysis and Building Mapping The availability of high quality topographic data is of vital importance for both reliable flood mapping and the accurate assessment of impacts at the building scale. It can also support innovative risk communication products, such as 3D visualizations of the flood hazard data for non-technical audiences.
We will review the quality of existing datasets with national coverage (e.g. USGS National Elevation Dataset) and consider the latest developments in topographic data acquisition and analysis under the FEMA Risk MAP program. We will compare this progress with the recent innovation in Europe, where data fusion techniques that combine detailed cartographic data with high-resolution LIDAR data are regarded as the current state of the art.
C.1.b Review Recent Developments in Hydraulic and Hydrological Analysis for Flood Modeling The importance of using ‗fit for purpose‘ modeling tools to simulate the flood hazard associated with different types and frequency of event cannot be overstated. A wide range of modeling tools are available to undertake the necessary analysis for storm surge and riverine perils, some of which explicitly represent real world physical processes while others utilize empirical and statistical relationships based on data from previous significant events.
Our review will focus on recent developments in these fields and will consider the strengths and weaknesses of the most widely-used tools and techniques. The review will consider recent developments in hydrological and hydraulic analysis applied in respect of FEMA‘s approach and procedures for analysis and mapping of floodplains in the present levee systems. In particular, FEMA has recently revised procedures for analysis of non-accredited levees on Flood Insurance Rate Maps. The review will assess the hydrological and hydraulic methods applicable in these situations.
C.1.c Review Recent Developments in the Statistical Analysis of Weather Conditions to Define Event Probabilities Current practice in flood studies connected with FEMA mapping relies on established engineering hydrological and precipitation analysis (e.g. methods set out by the US Army Corps of Engineersvi or the USGS ―Bulletin 17B‖vii). However, since the majority of such guidance was established there has been considerable research activity in the analysis of hydrological extremes and related weather conditions. Our review will consider developments in storm tracking, use of satellite weather monitoring and observation network data (including model-based reanalysis data), stochastic simulation
16
and advances in joint probability analysis. Methods able to analyze joint probabilities, both spatially and in terms of multiple hazards, are of particular importance for reinsurance programs. We will consider emerging techniques in this field and their capability to extrapolate from (necessarily) limited observational data up to the extreme tail regions of joint probability distributions for extreme precipitation and flooding.
C.1.d Review Available Flood Models Worldwide and Applicability to US A number of commercial flood models already provide varying degrees of data coverage and consistency for the United States (some examples are included in Box 2 below). The underlying methodology and outputs available in each case will be reviewed using information published by the respective vendors and, where possible, in discussion with these vendors. Where we can obtain access to data samples we will evaluate the quality of information at the building and ZIP code scale.
Box 2: A nonexhaustive list of extant US flood models.
US Hurricane Storm Surge Flood Models US Riverine Flood Models
RMS (Long Term and Warm SST) FEMA Risk MAP
AIR (Long Term and Warm SST) Swiss Re Global Flood Zones
EQE (Long Term and Near Term AMO) UNEP Global Risk Data
… EQECAT Flood Model
… FEMA Digital Flood Insurance Rate Maps (DFIRM)
… AIR US Inland Flood model
There are also developments in system-based flood models that combine models of the ―sources‖ of risk (such as extreme weather events, sea surges or river flows) with deterministic or probabilistic analysis of the river or coastal system (sometimes referred to as the risk ―pathway‖, including features like levees and floodplain flow routing) and assessment of the resulting damages. We will include in our review a survey of such modeling platforms, with particular reference to systems developed in the United States such as HEC FRA but also relevant international experience. The FEMA HAZUS methodology for estimating losses from disasters will naturally be included in our review as well.
C.2 Flood Model Specifications Keeping the above framework in mind, our proposed approach to section C.2 consists of four main steps outlined in Figure 17.
Figure 17: An outline of Consultant’s proposed process for modeling NFIP’s portfolio and providing financial projections.
Section C.2.a outlines AIR‘s approach alongside GC to gathering and cleaning policy data for model input. Section C.2.b outlines the components of AIR‘s comprehensive (both riverine and coastal) flood model and the company‘s approach to running said model on NFIP‘s exposure. Section C.2.c outlines GC‘s approach to catastrophe
17
modeling generally using both existing and newly developed models. Section C.2.d outlines GC‘s approach to financial modeling and helping clients to develop their own tailored view of risk using our proprietary software platform MetaRisk®.
C.2.a Gather and Scrub NFIP Data Exposure
AIR performs an extensive data review and validation process to ensure the accurate representation of exposures and, therefore, the most reliable results. Exposure data is checked for reasonability and completeness. A minimum amount of information is required for the model to generate a loss estimate. Some examples of required information are the location, replacement value and insurance terms of each risk. In preparing the data, if there is not enough information, assumptions may be needed or exposure data may be excluded. Mappings of exposure characteristics such as construction, occupancy, etc. are performed to valid AIR-supported formats for use in its stochastic models. Assumptions are determined in consultation with the client prior to the analysis.
GCA will work closely with AIR during the data collection process to ensure model inputs are as accurate as possible and NFIP receives the best possible service throughout this important phase of the overall project. GCA will further take data scrubbed by AIR and convert it to appropriate formats supported by other models. Along the way AIR and GCA will assists NFIP in understanding the importance of certain data elements for the cat modeling data collection process. Each client uses a different data extraction system and AIR and GCA are uniquely positioned to assist in data preparation as we have seen virtually all forms of data transfer and collectively have some experience with NFIP data. We will use an iterative process in our data preparation, profiling the data provided and allowing ample time for NFIP to pose data revisions prior to model analysis.
Experience
In addition to exposure data needed as an input to catastrophe models we will also ask for historical NFIP‘s claims data to inform our proposed supplemental actuarial analysis of NFIP‘s flood risk profile.
C.2.b Run Comprehensive AIR Flood Model AIR Hurricane (+Storm Surge) and Inland Flood Models for the United States
AIR‘s contribution to the study includes robust modeling of floods from both storm surge and riverine flooding. It will incorporate both the extensively researched AIR Inland Flood Model for the United States (due for release in 2014viii) and the storm surge component of the well-established and extensively used AIR Hurricane Model for the United States.
The catastrophe models developed at AIR incorporate sophisticated state-of-the-art analyses that capture the behavior of natural catastrophes and their impact on the built environment. They are extensively validated against claims data and published research, and subjected to rigorous reviews by industry experts. The three major components of AIR‘s catastrophe modeling framework are summarized below. Following these descriptions are overviews of the two models that are being used in this study.
18
Hazard: The models contain catalogs representing tens of thousands of years of simulated catastrophes, representing a robust view of plausible events during any given year. The analyses performed on these event catalogs provide some insight into the probabilities of event occurrence in a given area along with detailed event characteristics. For each simulated event, the model calculates the intensity at any given location using high-resolution terrain data forming a realistic representation of the area affected by the disaster. In the case of flood, the local intensity analysis results in a visual representation of the flooded area along with calculations that indicate water depth (and, in the case of storm surge, velocity) at a given site. This module accounts for the many factors that affect local intensity including the flood-generating storm parameters, land use and cover, topography, man-made flood defenses, and many other factors that affect the local severity of a flood. The factors specific to each model are described under the model overviews below.
Engineering: The intensity calculations from the hazard module are applied to highly detailed construction and occupancy information about the exposed properties. Vulnerability (damage) functions are created based on the mean damage ratio, which is the ratio of the property repair cost and its replacement value.
AIR damage functions also reflect a detailed and profound understanding of the evolution of building vulnerability and flood regulations in the United States and take into account the specific year of construction to allow for better differentiation of vulnerability across regions and time.
Financial: Modeled losses rely heavily on the accuracy of the modeled vulnerability of the building stock in the country, as well as the frequency of floods and, particularly for occurrence losses, the model‘s ability to accurately detect individual events that cause flood losses.
For each simulated event, insured losses are calculated by applying policy conditions (deductibles and limits, for example) to the total damage estimates. Insured losses by property are aggregated and assembled into a full statistical loss distribution that enables a variety of potential metrics and outputs. For example, average annual losses by location or the probability that losses exceed a user-defined amount over a defined region (exceedance probabilities) may be derived. These probabilities are typically represented as an ―EP curve‖ relating the size of the potential loss to the remoteness of the probability.
Modeled losses are validated using several methods. Whenever possible, observational loss data is analyzed and compared with modeled losses, and one of the most distinguishing features of the AIR Hurricane Model for the United States is the extent to which it has been validated using actual loss data. In addition to using observational data, AIR researchers look for agreement between the EP curves of the historical and stochastic catalogs.
The AIR Inland Flood Model for the United States
AIR models inland, or riverine, flooding using a fully probabilistic approach that captures the complexities of the flood risk for locations both on and off floodplains. The AIR Inland Flood Model for the United States covers the entire conterminous United States, including a river network that extends a total of 2.2 million km with 335,000 distinct drainage catchments, covering a total of 7.6 million square km. The model has been
19
rigorously validated using observational data based on river flows at 8,000 locations as well as lake and dam storage data from 30,000 locations.
The large-scale hydrological model uses an innovative technique that captures both the complex spectrum of storms across the U.S. mainland in four dimensions (three spatial and one temporal), and the highly localized precipitation bursts related to convective storms. This technique uses a coupling of a global atmospheric circulation model (GCM) with a meso-scale numerical weather prediction (NWP) model to provide consistency of storm analysis across the global and regional levels. An advanced statistical disaggregation (downscaling) of NWP precipitation yields robust and realistic high-resolution precipitation patterns.
The model accounts for the impact of snowmelt, surface and subsurface water flow, and nonlinear dynamic soil saturation, all important contributors to flood risk. The surface runoff produced by the model is routed downstream along a river network using a physically-based module that accounts for the river‘s cross-sectional shape, potential storm occurrence, and the effects of lakes, reservoirs, and dams, and burst ice jams, as well as man-made and natural levees. The model computes the discharge at each location along the river network at given time intervals, producing a hydrograph that provides the streamflow for each event, along each stream link. The flood events in the catalog are those for which the stream flow exceeds the bankfull discharge, which is estimated using the two-year return period peak discharge.
Determining Flood Intensity
The model assesses the inundation depth at each location of interest, for each flood event in the stochastic catalog, through the use of a physically-based hydraulic model. To estimate the flood intensity at a location, a relationship is built between the river discharge and the corresponding water levels at a location. The local conditions including the underlying geology, antecedent soil conditions, and generating storm intensity are captured on a 25-meter digital terrain. The digital terrain model includes four million river cross-sections at intervals of approximately 500 meters.
Figure 18: AIR’s hydraulic model realistically simulates flood extent using flood elevation levels at cross sections where stream links intersect a river. Here, the left-hand panel shows the computed water elevation points along the river network, while the right panel shows the maximum flood extent.
The model accounts for flood defenses using a probabilistic approach that incorporates the most prominently used standards of flood protection. The possibility of flood defense failure is addressed probabilistically, using fragility curves, which indicate the probability of failure given an intensity of loading.
Determining Inland Flood Damage and Loss On and Off the Floodplain
20
About 3,800 U.S. towns and cities are located on floodplains and therefore contribute significantly to insured loss from inland flooding. Vulnerability (damage) functions for on-floodplain buildings and their contents are developed by constructing a relationship between the expected damage in a building and a measure of the flood inundation depth. Damage to commercial establishments is assessed using a component-based approach that analysis damage to the building structure, services, and fixtures and fittings. The presence of a basement in an important factor in flood damage, as well as its use, which is often a determinant of the level of flood mitigation systems used in the building.
A significant portion of flood losses come from off-floodplain locations, typically when intense rainfall causes high levels of surface runoff. AIR takes a statistical approach when estimating the off-floodplain losses at a specific location. This analysis is based primarily on several variables used for each location of interest, for each event, including relative peak runoff, the local population density (which is a determinant of the extent of paved areas and drainage conditions), and the elevation of the location relative to the nearest stream.
The damage estimation also includes time element, to take into consideration the extra costs associated with the time taken to return the functionality of the flooded portion of the building. This includes damage assessment and removal of damaged contents, decontamination, drying, and repair. Business interruption losses are included for commercial establishments and account for a complex network of business suppliers and other services that are curtailed due to a flood event.
The AIR Hurricane Model for the United States
The storm surge component of the AIR Hurricane Model for the United States captures the effects of damaging storm surges generated by landfalling and bypassing hurricanes along the U.S. coastline from Texas to Maine. This includes the states of Alabama, Connecticut, Delaware, Florida, Georgia, Louisiana, Maine, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, New York, North Carolina, Rhode Island, South Carolina, Texas, and Virginia.
Storm surge is a rise in the water level along the shoreline that occurs due to a combination of wind stress, reduced atmospheric pressure, and wave breaking. Surges occur primarily during extratropical and tropical cyclones; under the right conditions a tropical cyclone (hurricane) can produce devastating and deadly storm surges such as the one caused by Hurricane Katrina in 2005. According to the Federal Emergency Management Agency (FEMA), nine out of ten hurricane fatalities in the United States can be attributed to the effects of storm surge.
The AIR model‘s stochastic catalog is based on data collected on more than 1,000 historical hurricanes that have formed in the North Atlantic basin since 1900. It uses the key meteorological variables of simulated hurricanes, such as central barometric pressure, radius of maximum winds, wind velocity, and forward speed to determine the probability of a damaging surge developing from a hurricane event, and its effect on properties.
Determining Storm Surge Intensity
During a hurricane, high winds force water onshore while the low barometric pressure relative to standard sea-level barometric pressure raises the sea-surface level. This
21
increase in sea-surface level forms as a dome beneath the hurricane and travels with the hurricane. The peak height of a hurricane storm surge is a function of the hurricane‘s central pressure, its size (radius of maximum winds), and its center location relative to the location of interest. While virtually every hurricane produces a storm surge, the AIR model analyzes the full track and central pressure of landfalling and bypassing hurricanes to determine the surge‘s severity.
The hurricane track is crucial as hurricanes that make landfall perpendicular to the coastline (often called ―coast-normal‖ hurricane tracks) are capable of pushing the water ashore with greater force than those that make landfall at oblique angles or skirt along the coast. Storm surges also tend to form on the right side of the storm track, where effective winds are higher due to the combination of the counterclockwise circulation of the hurricane and the storm‘s forward speed.
Local Conditions that affect Storm Surges
The elevation of a storm surge is also dependent on several local characteristics. Wave heights from the storm surge are affected by the local bathymetry near the coast, as shallow water produces a shoaling effect that enhances surge height. Shoaling occurs when the wave velocity decreases in shallow water due to the friction of the ocean floor. As the waves slow their wavelength decreases, which causes their height to increase.
Surge height is also affected by the coastal geometry and irregularities in the shoreline, such as bays and estuaries. While the large-scale coastal line can cause a convergence of a surge in a particular area, bays and estuaries further amplify wave heights by forcing the volume of water into a smaller area. These factors affect the baseline tide as well, which in turn can have a significant impact on the sea level elevation. While the baseline tide is primarily affected by the moon‘s gravitational pull, the tide‘s height and phases depend on many local factors and therefore varies by location.
As the storm surge moves onshore, its progress is attenuated by the local topography. Areas that lack steeper slopes are more vulnerable to a farther inland extent, as in the case of the surge from Hurricane Katrina in 2005. In this case, the lowlands of Louisiana allowed the surge to propagate great distances inland unimpeded. Using high-resolution digital elevation data, the AIR model determines the maximum surge depth that can occur at each coastal location of interest during a hurricane event.
22
Figure 19: Elevation and storm surge attenuation relationships capture coastal characteristics at a high resolution.
Computing Storm Surge Damage and Loss
The main parameter used for determining damage and loss from storm surge is the water inundation depth. However, AIR‘s damage functions also account for the force of the water against a structure, as well as the corrosive effects of salt. Damage functions are developed for different construction and occupancy types, as these determine the materials and building standards as well as the presence of flood defenses. Building height is an important factor in flood damage, and a higher percentage of low-rise buildings are affected by damage to the lower floors. While taller buildings are more vulnerable to wind damage, a lower percentage of the building as a whole is affected by flooding to the lower floors.
The damage functions for storm surge in the AIR model have been extensively validated using observational data available from FEMA and the Army Corps of Engineers and AIR‘s post-disaster surveys.
Running the Model
Working closely with NFIP and alongside GC, AIR will run NFIP‘s exposure through its comprehensive US flood model to produce probabilistic results. These results (in the form of EP curves and summary annual loss costs) will be provided to NFIP directly for consideration and to GC for use in project task C.2.d.
C.2.c Run Other Models on NFIP Data As respects Storm Surge modeling, GCA licenses and utilizes all of the major, commercially available catastrophe models from AIR, EQECAT and RMS. Each year, Guy Carpenter runs a significant number of catastrophe analyses, and is the single largest user of models in the reinsurance industry. We are uniquely positioned to evaluate multiple vendor models and determine best in class by peril region. We recommend using at least two vendor models (so AIR + RMS and/or EQE) for NFIP Storm Surge modeling to offer multiple perspectives on loss. We can then evaluate whether one model is better suited for your exposure or if a blended view is optimal (please note: in the longer term more commercial riverine flood models will likely become available allowing for multi-model approaches to be taken here as well if desired).
23
GCA has recently begun evaluation of each vendor‘s Storm Surge model. Testing includes comparison of surge footprints and the reasonableness of the coupling of hazard with vulnerability. We offer recommendations for Storm Surge analysis settings for each vendor depending on the class of business and the region. Analysts utilize our Model Suitability Analysis (MSA) to ensure a systematic and comprehensive review of the commercially available catastrophe models. The goal is to assist clients to better quantify and articulate their ‗view of cat risk‘ to both internal stakeholders and external constituents.
The MSA framework, shown in Figure 20, consists of eight components arranged along three model suitability perspectives that address the critical needs of a company in pursuit of developing its own view of risk.
Figure 20: GC’s Model Suitability Analysis framework.
C.2.d Compile and Present Modeling Results Detailed loss reports provide sensitive insight to portfolio accumulations in high risk regions as well as identify any model bias. GCA‘s Model Suitability Analysis (MSA) has effectively vetted the strengths and weaknesses of models and test plans are easily adaptable to new evaluations.
In the curve convolution process emphasis will be placed on Storm Surge, which will be relatively highly vetted versus other contributors to NFIP‘s loss potential (namely those driven by riverine flood indications and historical actuarial data) given the organization‘s loss history. While riverine flood is a major concern, only 1 of NFIP‘s 10 largest historical loss occurrences has resulted from an event unrelated to a coastal storm per Box 3.
Box 3: THE TEN MOST SIGNIFICANT FLOOD EVENTS BY NATIONAL FLOOD INSURANCE PROGRAM PAYOUTS (1)
Rank Date Event Location Number of paid losses
Amount paid ($ millions)
Average paid loss
1 Aug. 2005 Hurricane Katrina AL, FL, GA, LA, MS, TN 167,675 $16,269 $97,028
2 Oct. 2012 Superstorm Sandy CT, DC, DE, MA, MD, NH, NJ, NY, PA, RI, VA, WV
124,425 6,744 54,197
3 Sep. 2008 Hurricane Ike AR, IL, IN, KY, LA, MO, 46,429 2,666 57,429
COMPONENT 1
SENSITIVITY
TESTING
COMPONENT 2
LOSS
VALIDATION
COMPONENT 3
SCIENTIFIC
APPRAISAL
EVALUATION
COMPONENT 4
MSA GRID
COMPONENT 6
RISK
CUSTOMIZATION
INTEGRATION
Client’s View of Risk
COMPONENT 5
MODEL
ENHANCEMENT
COMPONENT 7
DOCUMENTATION
COMMUNICATION
COMPONENT 8
KNOWLEDGE
SHARING
24
OH, PA, TX
4 Sep. 2004 Hurricane Ivan AL, DE, FL, GA, LA, MD, MS, NJ, NY, NC, OH, PA, TN, VA, WV
27,658 1,590 57,504
5 Aug. 2011 Hurricane Irene CT, DC, DE, MA, MD, ME, NC, NH, NJ, NY, PA, RI, VA, VT
43,948 1,310 29,813
6 Jun. 2001 Tropical Storm Allison FL, LA, MS, NJ, PA, TX 30,663 1,104 36,000
7 May-95 Louisiana flood LA 31,343 585 18,667
8 Aug. 2012 Tropical Storm Isaac AL, FL, LA, MS 11,836 525 44,351
9 Sep. 2003 Hurricane Isabel DE, MD, NJ, NY, NC, PA, VA, WV
19,869 493 24,835
10 Sep. 2005 Hurricane Rita AL, AR, FL, LA, MS, TN, TX
9,499 472 49,662
(1) Includes events from 1978 to July 12, 2013. Defined by the National Flood Insurance Program as an event that produces at least 1,500 paid losses. Stated in dollars when occurred. Source: III; U.S. Department of Homeland Security, Federal Emergency Management Agency; U.S. Department of Commerce, National Oceanic and Atmospheric, Administration, National Hurricane Center.
Beyond the running of various probabilistic catastrophe models GCA will supply an actuary to analyze NFIP‘s historical attritional (non-cat) loss patterns using detailed claims data to the extent available. While this review will not constitute a comprehensive assessment of non-cat loss activity it will be intended to pick up trends and probabilities related to midsized loss occurrences. As part of this exercise we would also work with Oliver Wyman and NFIP actuaries to assess rate action and implications on overall financial performance.
Portfolio results are compiled with drills to regional loss, loss by varying risk characteristics and evaluation of impact of variations in policy conditions.
Key to evaluating model output is using a standardized platform that effectively compares or combines loss results. MetaRisk, Guy Carpenter‘s proprietary risk and capital decision tool, uses a simulation platform that incorporates any cat model and/or actuarial output. Blending and scaling of cat losses make MetaRisk ideal for integrating multiple model views and combining losses from different hazards and regions. In addition, MetaRisk comprises comprehensive underwriting, reserve, credit and investment risk capabilities. The inclusion of economic scenario files with both investment returns and inflation allows accurate recognition of the correlations between underwriting and investment returns. MetaRisk uses the scenarios to simultaneously and consistently model the effects of economic variables on your assets and liabilities, allowing you to more accurately measure the benefits of diversification. An analysis using the MetaRisk can serve as a consistent and transparent framework that supports reinsurance decisions and is would be an effective way for FEMA/NFIP to communicate its decision making process to Congress or other constituents.
As a public concern, in determining its exposure to loss FEMA/NFIP will be cognizant of the USG‘s unique contingent disaster liabilities discussed above. We can help integrate such exposures into risk assessments to a limited extent.
D Preparation of Studies and Analyses As requested under the specifications of the RFQ, GC together with its partners will prepare and deliver the requisite studies and analyses in accordance with FEMA‘s
25
needs as interim reports and final reports come due for each of the Section A-C components.
E Internal Coordination Support The project team will be available throughout the project period to provide ad hoc support to FEMA, FIMA or NFIP representative to support internal coordination of their overriding objectives under FIRS and B-W more broadly. We have budgeted 15 days for fulfillment of ad hoc requests relative to this function in our work plan.
i/ii/iii Project Management / Monthly Progress Reporting / In-Person Meetings GC as the Lead Contractor has developed an interim Project Management Plan, which has been shared with each of our partners. If selected by FEMA, we will deliver a full project plan within 7 days, refine that in a mutually acceptable fashion that supports the time-frame of the contract and begin coordination of such plan with the partners and FEMA. Once work begins in earnest, a monthly progress report will be communicated to FEMA in order to keep them abreast of developments. When required, in-person meetings will be held with FEMA/NFIP staff in order to support completion of the deliverables under this engagement.
i http://wrma.org/weather-markets-webinar.html ii American Institutes for Research; The National Flood Insurance Program‘s Market Penetration Rate: Estimates and
Policy Implications; 2007. iii Disastrous Spending: Federal Disaster-Relief Expenditures Rise amid More Extreme Weather; Center for American
Progress; 2013. iv The Property Claim Services (PCS) unit of ISO, a Verisk Analytics company and; EM-DAT: The OFDA/CRED
International Disaster Database www.em-dat.net - Université Catholique de Louvain - Brussels – Belgium) v Since the focus of this study is US national flood risk we will ignore the question of program scope in our base
analysis of the privatization issue which will focus around policy options 1-3, though will consider it secondarily as a supplement. vi U.S. Army Corps of Engineers, March 1993, Engineering and Design Manual EM 1110-2-1415, Engineering and
Design - Hydrologic Frequency Analysis, Washington, DC, vii
Subcommittee on Hydrology, Hydrologic Frequency Analysis Work Group, Bulletin 17-B, Advisory Committee on Water Information, USGS viii
AIR‘s Inland Flood model covers riverine flooding on and off-plain with the same stochastic architecture used in all AIR models. The runs can be done internally early next year to support this project.
1
About Marsh & McLennan Companies and Subcontractors
Marsh & McLennan Companies
Marsh & McLennan Companies (NASDAQ: MMC) is the premier global professional services firm providing advice and solutions in risk, strategy and human capital. Through our market leading brands – GC, Oliver Wyman, Marsh and Mercer – colleagues in more than 100 countries help clients identify, plan for and respond to critical business issues and risks.
Through our colleagues around the world, MMC helps clients solve problems and manage risks. Our people power our business by conceiving ideas, sharing insights, and working together to create solutions. As such, we are the very essence of a people business. Given this business model, a diverse and talented workforce is absolutely essential to our success as a global company. That is why one of MMC’s key objectives is to attract, retain, develop, and motivate the best people in our fields of endeavor, at all levels. As we see it, colleagues who bring different views and outlooks to the firm are better able to meet the needs of their clients around the world.
Our culture is one that celebrates and promotes the many backgrounds, heritages and perspectives of our colleagues. It is this culture of diversity and inclusion that helps us generate new ideas and create solutions that best serve our client base, which itself is increasingly diverse.
MMC’s Code of Conduct, The Greater Goodi, was launched in 2011 and has become part of the core philosophy of the firm. It provides guidance to colleagues on legal, ethical, and risk issues we encounter in our work, and helps us consider how actions we take affect the broader interests of our colleagues, clients, shareholders, and communities, particularly when the right course of conduct might not be clear.
2
About Guy Carpenter & Company, LLC
GC is the leading global risk and reinsurance specialist, with more than 90 years of experience providing integrated solutions to the (re)insurance industry. With more than 50 offices around the world, GC delivers a powerful combination of analytics, reinsurance broking and strategic advisory services to help our clients manage risk and achieve profitable growth. The firm is a recognized leader in its field (Figure 1) and our experience spans most lines of business including Property, Microinsurance, Parametric Catastrophe, Agriculture and many others.
Specifically GC has robust experience working with public-private insurers similar to NFIP all over the world. GC is presently the sole, lead or co-broker
on multiple national catastrophe schemes worldwide covering both terror and natural perils including: the Turkish Catastrophe Insurance Pool (TCIP), the Taiwan Residential Earthquake Insurance Fund (TREIF), the Caribbean Catastrophe Risk Insurance Facility (CCRIF) and the Iceland Catastrophe Insurance program (ICI).
Moreover, in the US, GC is the sole or co-broker for 10 state-level property catastrophe ―residual markets‖ including the Texas Windstorm Insurance and FAIR PLAN Associations (TWIA/TFPA), the North Carolina Joint Underwriting Association (NCJUA)
and the Massachusetts Property Insurance Underwriting Association (MPIUA). Our global footprint in the residual market space is further described in Figure 3.
Beyond these notable clients, GC has extensive experience in designing and placing catastrophic alternative risk financing mechanisms, disaster microreinsurance programs and insurance-linked securities for (quasi-)public entities on a global basis. This experience is embedded across GC though some specialized work is conducted by GC Securitiesii
related to capital market transactions and by GC Micro Risk Solutions®, in the global micro(re)insurance market. For more details on GC Securities’ experience with public
Figure 1: A list of recent awards received by GC for its work in the traditional reinsurance and Insurance Linked Securities (ILS) markets.
Figure 2: GC’s residual market experience covers sole and co-brokered Pools. 46% of known Pools (globally) involve GC either as the sole or co broker (see diagram). In 2012 US Pools represented by Guy Carpenter purchased over $8Bn of Cat Limit.
3
sector clients refer to Figure 3. For more details on GC Micro’s experience with public sector clients refer to Box 1.
Figure 3: GC Securitiesiii is a leading arranger of innovative government and residual market ILS transactions. These projects
include (among others): the first and only cat bond to securitize storm surge risk (MetroCat) and; Parkton Re the first-ever 144A catastrophe bond program to be established for the benefit of a state’s residual market pool to manage its hurricane risk.
Box 1: Notable GC Micro Risk Solutions® projects.
Project Name
USAID/REDDOM CRII
IFC GIIF MZ ILO Microinsurance Innovation Facility
MiCRO
Description
Climate Resilience and Index Insurance for Smallholder Farmers in Dominican Republic (DR).
Received grant from IFC for index-insurance product design and deployment in Mozambique (MZ).
Received Innovation Grant from ILO and managed resultant global consultancy project to.
Cofounded the Microinsurance Catastrophe Risk Organization SCC (MiCRO).
Key Innovation
Project ongoing; GC Micro contracted to design, develop and deploy index-based weather insurance pilots for vulnerable smallholder farmer groups in DR. Will be first such products to launch in local market.
Project completed on-time and on budget; successfully launched two pilot weather index insurance programs for maize and cotton, first-ever such programs for MZ market
iv
Project completed on-time and on budget; culminated in placement of industry-first microreinsurance transaction providing secondary support to a state-sponsored microinsurance scheme covering millions of low-income consumers in India
v
First standalone catastrophe micro(re)insurer to provide low-income persons with unique parametric and basis risk transfer protections for multiple perils
vi.
• GC Securities has raised the most catastrophe bond capital for worldwide government entities and residual market insurers; GC Securities has been the
sole bookrunner for 6 of the 7 deals they have been a part of in the last five years(1)
• GC Securities’ continuous ILS focus for government and residual market insurers is evident by the 2013 successful cat bond completions for the
NCJUA/NCIUA, the Turkish Catastrophe Insurance Pool and the MTA, in addition to other cat bond placements dating back to 2003
As of August 13, 2013
(1) 6 of 7 deals translates into $1.7 billion out of the total $1.9 billion of capital raised on transactions involving GC Securities (2) Includes transactions completed by GC Securities and transactions in which current senior Guy Carpenter employees (including Cory Anger, Chi Hum, Jay Green and Masaaki
Katsuyama) were involved in while with previous employers(3) First government sponsored transaction in history was issued in 2003 for TREIF (Taiwan Residential Earthquake Insurance Fund), which GC Securities worked on
• In addition to being the lead arranger for government / residual market catastrophe bond issuances, GC Securities places substantial amounts of collateralized reinsurance for residual market insurers
•
• The ability to place 144A cat bonds, private cat bonds, and collateralized reinsurance provides GC Securities with more avenues and greater placement leverage when compared to reinsurers and investment banks
NCJUA / NCIUA
$879,400,000
Collateralized Reinsurance
Reinsurance protection from North Carolina hurricanes
Sole Broker
2012-2013
$407,000,000
Collateralized Reinsurance
per occurrence protection for
Texas hurricanes
Sole Broker
2012-2013
~$716,000,000
Collateralized Reinsurance
per occurrence protection for
U.S. wind
Co-Broker
2011-2013
$134,700,000
Collateralized Reinsurance
reinsurance protection from Mississippi hurricanes
Co-Broker
2012-2013
$100,000,000
Collateralized Reinsurance
reinsurance protection from Massachusetts hurricanes
Sole Broker
2012-2013
$200,000,000
MetroCat Re Ltd.
catastrophe bond issuance providing per-occurrence
parametric-triggered protection against storm surge risk during a
Named Storm’s event period
Joint Structuring Agent, Lead Manager and Sole Bookrunner
2013
$400,000,000
Bosphorus 1 Re Ltd
catastrophe bond issuance providing per-occurrence
parametric-triggered reinsurance protection against earthquakes
affecting the Istanbul region
Sole Bookrunner, Co-Structurerand Co-Lead Manager
2013
NCJUA / NCIUA
$1,206,835,000
Four catastrophe bonds: Tar Heel, Johnston Re 2010-
2011 and Parkton Re
Indemnity protection from North Carolina named storms
Sole Bookrunner, Lead Structurerand Co-Lead Manager
2009-2011,2013
$96,000,000
Shore Re Ltd.
catastrophe bond issuance providing reinsurance protection from Massachusetts hurricane
events to
Sole Bookrunner, Joint Structurerand Co-Lead Manager
2010
$100,000,000
Formosa Re
catastrophe bond issuance providing reinsurance protection
from Taiwan earthquake events to
Co-Lead Manager
2003
2006 - 2013YTD P&C Cat Bond Top 5 League Table(2)(3)
League Table
PositionArranger / Dealer
Capital Raised
($ millions)# of Deals
1 GC Securities $2,252.8 9
2 Munich Re $1,817.8 6
3 Goldman Sachs $1,605.0 4
4 Swiss Re Capital Markets $1,065.0 5
5 Loop Capital $1,000.0 2
4
Our corporate reach extends well beyond the residual market/public sector space. Evidencing this is the size of our trading relationships with all major reinsurers (Figure 4). This gives us substantial credibility and clout in the marketplace. Understanding too the importance of counterparty security to our clients, GC’s Market Information Department (MID) tracks and monitors the financial results of circa 500 reinsurance markets and maintains detailed profiles on Lloyd’s of London Syndicates.
Figure 4: The extent of GC’s trading relationship (all lines) with 26 major reinsurers.
Relative specifically to the property market GC is undoubtedly a market leader handing roughly 25% of the global Property Catastrophe Excess of Loss placements based on worldwide global limit of $313B and placing $11.4bn of property reinsurance premium into the market in 2012 (Figure 5).
Figure 5: Aggregate premiums placed into the global reinsurance market by GC – totals shown for all lines and property only.
GC Analytics®
The use of catastrophe models to quantify loss potential is fundamental to executing property catastrophe reinsurance transactions. In order to provide our clients with a full
5
spectrum of catastrophe modeling services, Guy Carpenter has made considerable investments in its catastrophe modeling capabilities including a large dedicated catastrophe modeling team as well as an array of software tools. GC Analytics (GCA) runs catastrophe analyses for more than 1,400 individual companies each year, making Guy Carpenter one of the largest users of the major vendor models. We license and utilize all of the major, commercially available catastrophe models and we have developed proprietary models to meet the specific needs of our clients. We have also funded a series of joint venture investments with various model vendors in developing modeling technology in emerging areas globally. These efforts have allowed Guy Carpenter to stay at the forefront of emerging risk quantification tools and solutions and underscore our commitment to maintaining industry leadership in technological innovation for risk assessment and management.
To support GC’s primary business activity, we seek to enhance our clients’ understanding of risk and develop new models to support client and business needs where there are current gaps in understanding, existing models are lacking or an independent opinion is needed. To date GC’s model development team has been involved in the development of more flood models than any other firm (see Box 2 for details). We are also one of the largest licensors of catastrophe models from commercial modeling vendors which enables us to educate and advise our clients on the technical underpinnings of these tools.
Box 2: GC’s proprietary probabilistic flood models by jurisdiction
Jakarta, Indonesia France Czech Republic
Slovakia Austria Hungary
Poland Belgium Germany
Slovenia Italy (Pending) Netherlands (Pending)
Overall, GC believes in a multi-model approach to evaluating a company’s catastrophe risk. The advantages of blending the models include reducing ―model change volatility‖ from new model releases and hedging against the inaccuracies of each model. As a leading user of the major vendor models, we are able to provide FEMA/NFIP with the benefit of our perspective regarding the nuances of a particular model and modeling issues in general. As new model versions are released, we provide timely and thorough explanations of the changes and their likely impact on your modeled results. Because of the increasingly complex intricacies of the models and their methodologies, we recently released the Model Suitability AnalysisSM tool subsequently referenced in this document to help our clients determine the optimal modeling philosophy for their portfolio.
Enabling this multi-model approach is our proprietary dynamic financial analysis platform, MetaRisk® which is the (re)insurance industry’s most transparent risk and capital decision tool. A truly integrated model, MetaRisk gives users comprehensive underwriting, reserve, catastrophe, credit and investment risk analysis capabilities. For more on MetaRisk see Box 3.
Box 3: Description of GC’s MetaRisk® In use for nearly 20 years, MetaRisk® has been enhanced to meet the demands of Enterprise Risk Management. Its realistic approach to risk and capital modeling will allow FEMA/NFIP to:
6
• Understand both systemic and unique risk sources
• Reflect correlation between assets and liabilities
• Monitor earnings volatility
• Allocate capital to business units
• Quantify overall capital adequacy
• Evaluate alternative capital management strategies
• See the results with full financial statements over a multi-year horizon
• Efficiently review the cost-benefit of any reinsurance strategy
Using MetaRisk®, NFIP will have more clarity around the drivers of strategic decisions, helping to achieve the optimal balance between risk and returns and the best possible results given regulatory constraints. While MetaRisk® offers users a wealth of functionality, some of its key feature and benefits are outlined below. Transparency MetaRisk
® is uniquely transparent
and auditable so NFIP can validate your risk and capital position internally and externally with confidence. Its outputs provide a wide range of standard financial metrics so you clearly understand what’s happening to the both the income statement and balance sheet. MetaRisk
® also lets NFIP
implement detailed decision rules that allow you to realistically model your business and react to changing conditions when they happen.
Realistic Timeline Simulation Because MetaRisk
® is structured on
a timeline of events that unfold during the course of a simulation, it reflects the evolution of risks and associated cash flows over time. This added dimension ensures that both short- and long-tailed lines of business are accurately modeled. Its highly transparent foundation allows NFIP to filter events across the timeline to quickly identify the drivers of adverse risk scenarios at their source and dynamically evaluate alternatives to mitigate the risk.
Intuitive Design Surface All the components you need to make confident decisions about risk and capital are on the screen in front of you. It’s easy to learn intuitive platform requires fewer dedicated staff hours and eliminates the need for ongoing consulting costs. With MetaRisk
® you spend less time
working on the model, and more time creating value for your business.
Correlation of Assets and Liabilities MetaRisk
® is a truly integrated
model, with comprehensive underwriting, reserving, catastrophe, and investment risk capabilities. Licensing Barrie & Hibbert data, Guy Carpenter can import economic scenario data that correlates inflation with changes in assets. Using these scenarios, or those from another source, MetaRisk
® can model the effects of
economic variables on NFIP’s assets and liabilities.
Modern PC Platform & .NET Infrastructure MetaRisk
® delivers the speed,
flexibility and cost efficiencies of PC-based tools. It provides faster run times with smaller files, giving your analytical team more reliable results more quickly. The small IT footprint means you don’t have to increase your budget for special hardware or extra servers to run it. The modern software platform ensures your investments are long-lived.
Capacity for Unlimited Trials You reduce your margin of error and increase the accuracy of your decisions when you are able to run millions of trials instead of thousands at one time. MetaRisk
® handles large
models in just a fraction of the time of other models so you can run more potentially business-critical simulations.
About Oliver Wyman Group
Oliver Wyman is a global leader in management consulting. With offices in 50+ cities across 25 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. The firm's 3,000 professionals help clients optimize their businesses, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities.
Oliver Wyman’s thought leadership is evident in our agenda-setting books, white papers, research reports, and articles in the business press. To that end, the Oliver Wyman Institute connects the firm with prominent leaders of the academic community for joint research on frontier issues. The firm's Global Risk Center analyzes the increasingly complex risks that are reshaping industries, governments, and societies.
7
The firm’s capabilities and intellectual capital are enhanced by its deep industry expertise, geographic range, analytical rigor, and hands-on, collaborative approach. Our professionals see what others don't, challenge conventional thinking, and consistently deliver innovative, customized solutions. We also work side by side with senior executives to accelerate execution through a blend of behavioral and management approaches. As a result, we have a tangible impact on clients’ top and bottom lines.
Evidencing this tangible impact is Oliver Wyman’s extensive experience working with regulators and public-private insurance clients globally as summarized in Figure 6.
Figure 6: Sample of Oliver Wyman public policy experience
About Marsh
Marsh is the world leader in delivering risk and insurance services and solutions to clients. It provides global risk management, risk consulting, insurance broking, alternative risk financing, and insurance program management services for businesses, public entities, associations, professional services organizations, and private clients. Marsh is organized by client, industry, and risk categories to facilitate the global delivery of highly specialized products and services covering a wide spectrum of risks. With 26,000 employees and annual revenues over $5 billion, Marsh serves more clients in more industries worldwide than any firm in the industry.
Marsh’s Flood Service Center (FSC), part of the U.S. Property Practice, is dedicated to offering clients unrivaled expertise in the placement and servicing of the insurance coverage provided by the National Flood Insurance Program (NFIP). It takes the guess work out of current flood placements, ensures proper zoning—which results in correct premium rates being charged to the client—and appropriate coverage in place should a flood event occur.
8
The FSC includes two experienced underwriters and a dedicated practice leader, who collectively have more than 15 years of experience placing flood coverage and nearly 75 years in the insurance industry. The practice currently services more than 6,000 placements for over 1,000 clients.
Together with engagements from GC and Oliver Wyman, MMC has direct business relationships with nearly every Write-Your-Own (WYO) company supporting the NFIP platform.
About AIR Worldwide
AIR Worldwide founded the catastrophe modeling industry in 1987 and is a world leader in the development and application of mathematical models that assess the potential financial ramifications of natural and man-made catastrophes on property and life. The company is headquartered in Boston, Massachusetts, and has offices in Beijing, Hyderabad, London, Munich, San Francisco, Singapore, and Tokyo. Its mission is to deliver best-in-class catastrophe modeling tools, services, and software applications to insurers, reinsurers, financial institutions, government entities and corporations worldwide.
Today, AIR Worldwide models the risk from natural catastrophes and terrorism in more than 90 countries. Its catastrophe models are widely used to assess risk, manage exposure to natural and manmade catastrophes, drive policy decisions, and help plan for and mitigate the effects of future disasters in populated areas. Over 400 clients around the world, in the insurance, reinsurance, intermediary, government, and NGO sectors use AIR’s model results as a trusted currency in their decisions regarding catastrophe risk. All of the top reinsurance brokers use AIR models, over 90% of catastrophe reinsurance premium is priced using AIR’s results, and 7 of the top 10 U.S. property insurers use AIR models in-house.
AIR’s staff of over 400 embodies diversity in work experience; academic training; and race, gender, and ethnicity. It includes multidisciplinary teams of highly qualified professionals representing the disciplines of meteorology and climate science, seismology and geophysics, wind and earthquake engineering, mathematics, statistics and actuarial science, insurance and reinsurance, and software engineering. A significant percentage of the company’s technical professionals hold Ph.D. credentials in their fields of expertise. AIR is a member of the Verisk Insurance Solutions group at Verisk Analytics, a publicly traded company (NASDAQ: VRSK).
About JBA Consulting (JBA)
JBA Consulting is the trading name of Jeremy Benn Associates, a leading environmental and engineering consultancy undertaking work to enhance the built and natural environment in the UK and the rest of the world. A company within JBA Group, JBA Consulting is an international leader in flood modeling and provider of impacts analysis that provides an unbiased and independent point of view to this project as it focuses solely on public and private sector companies outside of the insurance industry (JBA Risk Management, the part of JBA Group that deals with the re/insurance sector will have no involvement with this work and also has no existing US flood models).
i www.mmc.com/about/code.php ii Securities or investments, as applicable are offered in the US through GC Securities, a division of MMC Securities
Corp. (―MMCSC‖), a US registered broker-dealer and member FINRA/SIPC. Main office: 1166 Avenue of the Americas, New York, NY 10036. Phone: 212.345.5000. Securities or investments, as applicable are offered in the
9
European Union by GC Securities, a division of MMC Securities (Europe) Ltd., which is authorized and regulated by the Financial Services Authority. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities Corp., MMC Securities (Europe) Ltd., and Guy Carpenter, LLC are affiliates owned by Marsh & McLennan Companies (―MMC‖). Reinsurance intermediary services are offered through Guy Carpenter & Company, LLC. This communication is not intended as an offer to sell or a solicitation of any offer to buy any security, financial instrument, reinsurance or insurance product. iii This information was prepared by MMCSC and/or Guy Carpenter & Company, LLC. (―Guy Carpenter‖ or
‖GC‖), the reinsurance brokerage arm of MMC. All statistical tables, charts, graphs or other illustrations contained herein were prepared by MMCSC or GC unless otherwise noted. Results from simulations and projections are for illustrative purposes only and are based on certain assumptions. Therefore the recipient should not place undue reliance on these results. Past performance does not guarantee future results. Neither MMCSC nor GC is a legal, tax or accounting adviser and makes no representation as to the accuracy or completeness of any data or information gathered or prepared by MMCSC or GC hereunder. Your company should therefore consult with its own tax, accounting, legal or other advisers and make its own independent analysis and investigation of the proposed transaction, as well as the financial and tax consequences thereof, the creditworthiness of the parties involved and all other matters relating to the transaction, prior to its own independent decision whether or not to enter into any agreements in connection with any transaction. This document contains indicative terms for discussion purposes only. MMCSC and GC give no assurance that any transaction will be consummated on the basis of these indicative terms and no specific issuer is obligated to issue any security or instrument on such indicative terms. This presentation does not constitute an offer to sell or any solicitation of any offer to buy or sell any security or instrument or to enter into any transaction on such indicative terms. An investment in insurance linked securities is speculative, involves a high degree of risk and should be considered only by institutional investors who can bear the economic risks of their investments and who can afford to sustain the loss of their investments. Noteholders may lose all or a portion of their investment. Institutional investors should thoroughly consider the information contained herein. This document is not intended to provide the sole basis for any evaluation by you of any transaction, security or instrument described herein and you agree that the merits or suitability of any such transaction, security or instrument to your particular situation will be independently determined by you including consideration of the legal, tax, accounting, regulatory financial and other related aspects thereof. Opinions and estimates constitute MMCSC’s and/or GC’s judgment and are subject to change without notice. In particular, neither MMCSC nor GC owes duty to you (except as required by the rules of the Securities and Exchange Commission, Financial Industry Regulatory Authority, Financial Services Authority, and/or any other regulatory body having proper jurisdiction) to exercise any judgment on your behalf as to the merits or suitability of any transaction, security or instrument. The information contained herein is provided to you on a strictly confidential basis and you agree that it may not be copied, reproduced or otherwise distributed by you (other than to your professional advisers) without our prior written consent. This material provides general and conceptual information about certain financial strategies, and does not discuss or refer to any specific securities or other financial product. This presentation is not intended as marketing, solicitation or offering any security or other financial product in Japan. This material is intended only for sponsors, financial intuitions and qualified investors. MMCSC and/or GC may have an independent business relationship with any companies described herein. Trademarks and service marks are the property of their respective owners. The source of information for any charts, graphs, or illustrations in this document is GC Securities Proprietary Database 2013, unless otherwise indicated. Cory Anger, Chi Hum, Geoff Sweitzer, Ryan Clarke, Jay Green and Sung Yim are registered representatives of MMCSC. iv http://www.gccapitalideas.com/2011/03/22/guy-carpenter-to-develop-agriculture-microinsurance-market/
v http://www.gccapitalideas.com/2009/02/24/guy-carpenter-receives-grant-to-create-reinsurance-facility/
vi http://www.gccapitalideas.com/2011/03/30/microinsurance-catastrophe-risk-organisation-micro-created-to-help-
protect-haiti%e2%80%99s-micro-entrepreneurs/
1
GUY CARPENTER / GC SECURITIES REFERENCES
California Earthquake Authority Tim Richison, CFO c/o Tracy Palombo, Financial Analyst 801 K Street, Suite 1000 | Sacramento, CA 95814 916-325-3835 | [email protected]
Citizens Property Insurance Corporation Barry Gilway, President and CEO 7215 Financial Way | Jacksonville, Florida 32256 850-513-3744 | [email protected]
Massachusetts Property Insurance Underwriting Association/Rhode Island Joint Reinsurance Association Jack Golembeski, President 2 Center Plz # 800 | Boston, MA 02108 617-557-5540 | [email protected]
Nederlandse Herverzekeringsmaatschappij voor Catastroferisico’s N.V. (Dutch Reinsurance Company for Catastrophe Risk N.V.) Harko Kremers, Project Manager – Flood Insurance P.O. Box 1074 | 2280 CB Rijswijk | The Netherlands +31 (0) 70-340-81-45 | [email protected]
North Carolina Joint Underwriting Assoc./North Carolina Insurance Underwriting Assoc. Gina Schwitzgebel, General Manager PO Box 8009 | Cary, NC 27512 919-744-2680 | [email protected]
Texas Windstorm Insurance Association Jim Murphy, Chief Actuary 5700 S. Mopac Expy, Building A | Austin, TX 78749 512-899-4945 | [email protected]
Turkish Catastrophe Insurance Pool/ Eureko Sigorta Suha Cele, Executive Vice president TCIP | (as managed by) Eureko Sigorta | Ord. Prof. Fahrettin Kerim Gokay CadNo 20, 34662Uskudar | Istanbul |Turkey 00902164001190 | [email protected]
2
GUY CARPENTER SECURITIES / MARSH REFERENCE
Metropolitan Transit Authority (New York) Larueen Coyne, Director, Risk and Insurance Management 341 Madison Ave | New York, NY 10017-373 212 878 7411 | [email protected] 2013 | Completed the placement of a $200 million catastrophe bond to help New York's Metropolitan Transportation Authority guard against the risk of storm surge
OLIVER WYMAN REFERENCE
The Bermuda Monetary Authority Jeremy Cox, Chief Executive Officer BMA House | 43 Victoria Street | Hamilton 441-278-0205 | [email protected]
AIR WORLDWIDE REFERENCE
Mississippi Insurance Department Mike Chaney, Commissioner of Insurance 1001 Woolfolk State Office Building | 501 North West Street | Jackson, MS 39201 Comprehensive Hurricane Damage Mitigation Program Cost and Benefit Study February 2010 | http://www.mid.ms.gov/pdf/chdmp_study.pdf
Florida Division of Emergency Management Mr. Miles Anderson, State Hazard Mitigation Officer 2555 Shumard Oak Boulevard | Tallahassee, FL 32399 Hurricane Loss Mitigation Study for Commercial Risks in Florida Summer 2009 | http://www.floridadisaster.org/mitigation/State/documents/2010stateplan/appendix/FINAL%20Appendix%20L_Commercial%20Wind%20Risk%20Study%202009.pdf
Deputy Commissioner for Property & Casualty Richard Koon, Florida Office of Insurance Regulation 200 East Gaines Street | Tallahassee, Florida 32399-0305 Florida Insurance Discounts for Wind Loss Mitigation and Relationship to the Florida Uniform Home Grading Scale January, 2011 | http://www.floir.com/siteDocuments/Home_Grading_Scale_Final_Report.pdf
1
GUY CARPENTER JONATHAN (JAKE) CLARK Managing Director | Guy Carpenter Norwalk, CT | 203-229-8848 | [email protected]
CURRENT RESPONSIBILITIES
Jonathan (Jake) Clark is currently a Managing Director located in Guy Carpenter & Company, LLC's New York, NY office. He joined the firm in 1992 following six years of service as an underwriter with The Chubb Group.
Jake's responsibilities fall within Guy Carpenter's treaty broking operations. Account and prospect responsibilities include a number of large multi-national companies located in both the domestic and international marketplace. In addition, he handles business development efforts in the public entity sector, which falls within the scope of the Company’s Specialty Practices.
From 2002 to 2006, Jake spent four years on assignment in Guy Carpenter's European operation. During his tenure with the firm, Jake served as a representative of Marsh & McLennan Securities Corporation (the predecessor organization to GC Securities).
Jake earned his BA degree in Government from St. Lawrence University (1986)
EXPERIENCE
June, 1986 – November, 1992: Chubb Group of Insurance Companies 1986 – 1989: Personal Lines Underwriting, White Plains, NY 1989 – 1992: Department Manager, Albany, NY
November, 1992 – Present: Guy Carpenter & Co., LLC 1992 – 2002, New York, NY: Domestic Treaty (Casualty / Property) 1999 – 2003, representative of Marsh & McLennan Securities 2002 – 2006, Munich, Germany: International Treaty (Property) 2006 – 2007: New York, NY (Domestic / International Treaty) 2007 – 2011: Norwalk, CT (Office Manager) 2012 – 2013: New York, NY (US Treaty)
Account / Project Involvement with Guy Carpenter has included assignments supporting: ACE International, Alm Brand, Allianz Global Risks, AXA, Beazley, Chubb Group, Hiscox Ltd., Commercial Union / One Beacon, MetLife Home & Auto, Munich Re, NY Schools Reciprocal, QBE, Renaissance Re, Tokio Fire & Marine, Wright Risk
2
ALEX BERNHARDT, ARE, AIS, ARM-P Senior Vice President | Guy Carpenter Seattle, WA | 206-621-2924 | [email protected]
CURRENT RESPONSIBILITIES
Alex leads Guy Carpenter’s Micro Risk Solutions® division (GC Micro). GC Micro supports GC’s global business development and thought leadership efforts related to micro(re)insurance and/or public sector disaster risk management. In addition to the placement of an industry-first microreinsurance transaction in 2010, GC Micro is a sought-after adviser to development banks and public entities.
Recently Alex has served as a technical member and lead writer for a consortium contracted by the Asian Development Bank (ADB) to provide risk transfer advice to the bank with respect to its non-sovereign loan and guarantee portfolio. He is also co-lead project manager for an ongoing USAID/REDDOM project: Climate Resilience and Index Insurance for Smallholder Farmers in Dominican Republic. Under this project his responsibilities include managing the design, development and deployment of index-based weather insurance pilots for select vulnerable smallholder farmer groups.
EXPERIENCE
Additionally, Alex has developed a broad base of experience in traditional treaty reinsurance, producing and servicing a variety of property, casualty and general agency accounts developing expertise in diverse specialized lines/classes of business including: public/tribal entity; earthquake and DIC; energy liability; credit risk and; intellectual property.
EDUCATION
BA in English (Major) and Philosophy (Minor), University of Puget Sound, Tacoma, WA
AFFILIATIONS
Associate in Reinsurance – ARe
Associate in Insurance Services – AIS
Associate in Risk Management – ARM
Associate in Risk Management for Public Entities – ARM – P
3
JOHN M. KULIK, FCAS Senior Vice President | Guy Carpenter New York, NY | 917-937-3216 | [email protected]
CURRENT RESPONSIBILITIES
John Kulik is a Fellow of Casualty Actuarial Society (1994) with extensive industry experience including 20 years in reinsurance. John currently is a Senior Vice President for Guy Carpenter.
EXPERIENCE
Previously John served in several roles with Arch Re and SCOR Re. John also worked on the primary insurance side for several companies such as Crum & Forster for over 10 years. John has published several papers and has spoken at Casualty Actuarial Society conferences through his career.
EDUCATION
BA from the University of Florida
AFFILIATIONS
Fellow of the Casualty Actuarial Society - FCAS
ELIZABETH CLEARY Managing Director – Guy Carpenter Morristown, NJ | 973-285-7934 | [email protected]
CURRENT RESPONSIBILITIES
Liz Cleary is a Managing Director in Guy Carpenter & Company, LLC's Morristown office. As a member of the firm's GC Analytics® unit, she specializes in the modeling of catastrophic risk and is responsible for managing projects for key Guy Carpenter clients. Liz has participated on various steering committees for the firm's catastrophe modeling platform.
EXPERIENCE
She began her career as an underwriter with Home Insurance Company before joining Guy Carpenter, in 1983, as a facultative broker, placing excess and surplus lines and large limit risks. From 1993 to 1996, Liz worked at Marsh as a retail broker handling national account business. She returned to Guy Carpenter in 1997 as a member of the Quantitative Services team (now the Instrat unit).
EDUCATION
BA in Business from Cornell University, Ithaca, NY.
4
MANUEL CHIROUZE, AFPS, EERI Senior Vice President – Guy Carpenter San Francisco, CA | 415-984-2840 | [email protected]
CURRENT RESPONSIBILITIES
Manuel is in charge of Catastrophe Model Developments and heads the Catastrophe Modeling division for Latin America and the Caribbean. His main objective is to develop methods to quantify the exposure to natural hazards where no commercial solutions are available. To that end, he is responsible for the development of G-CAT, Guy Carpenter’s internal catastrophe modeling framework which includes exposure assessment disaggregated to a fine geographical grid, hazard modeling for both historical and synthetic events and vulnerability functions for highly resolved risk classes.
EXPERIENCE
Prior to joining Guy Carpenter Manuel was in charge of research and development for parametric reinsurance products for the Benfield Group in Paris. In 2002 Benfield Group launched CatiXL, with the objective for it to become a market platform for index-based reinsurance covers in Europe. Manual managed all the data-related aspects which included: business relations with National Meteorological Offices, definition and management of the data repository, data quality assurance (missing data, homogeneity, spatialisation) and index structuring. The main perils covered were extra-tropical hurricanes, droughts and cold spells.
EDUCATION
MS in Earthquake Engineering and Structural Dynamics from the University of California Los Angeles
BS in Engineering from the French Institute of Technology – ESTP Paris
AFFILIATIONS
Association Francaie de Para – Sismique (AFPS)
Earthquake Engineering Research Institute (EERI)
5
GUY CARPENTER SECURITIES CORY ANGER Managing Director – Guy Carpenter Securities New York, NY | 917-937-3281 | [email protected]
CURRENT RESPONSIBILITIES
Cory Anger is the Global Head of ILS Structuring for GC Securities*, the investment banking arm of Guy Carpenter & Company, LLC and a division of MMC Securities Corp. She has been involved in the insurance-linked securities space since 1999.
EXPERIENCE
Prior to joining GC Securities in May 2008, Cory was a Senior Vice President at Lehman Brothers in the Insurance Products Group where she spent more than eight years originating and structuring insurance solutions for the P&C and life insurance sectors. Prior to Lehman Brothers, she worked in credit risk management at Merrill Lynch and the risk analysis division at the Office of the Comptroller of the Currency (regulator of national banks).
EDUCATION
MBA in Finance and Account from the Simon School of Business at the University of Rochester
MS in Statistics from George Mason University
BS in Statistics and Economics from Virginia Tech
6
OLIVER WYMAN MATTHEW LEONARD Partner – Oliver Wyman Chicago, IL | 312-345-2951 | [email protected]
CURRENT RESPONSIBILITIES
Matt Leonard is a Partner based in the Chicago office of Oliver Wyman and a member of the firm’s Insurance practice. Matt has worked in depth with major institutions in North America, Europe, and Asia covering a range of topics including market strategy, public policy, organizational design and financial effectiveness.
Examples of his client work include
Strategy
US market entry business case development for a leading Asian insurance group
Customer/demand interviews across several European countries for a global reinsurer evaluating a new product offering
Operations
Claims and legal transformation initiative for a US commercial P&C insurer Operational simplification initiative for a global P&C insurer
Risk management and regulation
Supporting an insurance regulator in its Solvency 2 equivalence program Several position papers on required changes to European solvency regulation
for the Chief Risk Officer Forum, a consortium of leading insurance groups
EXPERIENCE
Matt is author of a number of Oliver Wyman reports, for example, “The Implications of Financial Regulatory Reform for the Insurance Industry” (co-published with the Institute of International Finance) and “The New Bull Market in Risk: A Journey into the Future of Corporate P&C Insurance.”
He joined the firm in Oliver Wyman’s London office, where he worked for many years before relocating to Chicago. His prior professional experience includes seven years in the commercial P&C insurance industry, most recently as a Vice President in Marsh Inc.’s Risk Finance practice, based in San Francisco.
EDUCATION
MBA from the University of California at Berkeley
BA in Business Administration from the University of Wisconsin - Madison
7
MARK AMES Partner – Oliver Wyman Troy, MI | 734-267-4573 | [email protected]
CURRENT RESPONSIBILITIES
Mark is a member of Oliver Wyman’s Finance and Risk and Insurance practices. Mark has deep expertise in modeling and quantitative applications, especially as applied in risk and capital management. While his recent work has focused primarily on issues of financial effectiveness for Property & Casualty insurers, Mark has a broad experience base with banks and insurers spanning market, credit, operational, and underwriting. Mark has worked on both sides of the regulatory equation, for regulators and regulated entities, on topics of capital adequacy, risk adjusted performance measurement, economic optimization, and more general risk and model governance.
Some of Mark’s recent client engagements have included
Led the assessment of global (re)insurer’s framework for enterprise risk management
For a leading insurer of Political Risk, developed and implemented an economic capital model that supports capital assessment, concentration identification, provisioning, and pricing across a multi-period timeframe
Designed a group risk function for a leading Bermuda/London reinsurer Led the development of an Internal Capital Model qualification and approval
process for the Bermuda Monetary Authority For a large development bank, constructed enhanced approach to capital
management supporting the financing of vaccine delivery With the Wharton Risk Center, jointly conducted a survey of capital
management practices among North American P&C insurers Developed a best in class risk capital aggregation methodology for a major
multi-line property and casualty insurer.
EXPERIENCE
Before joining Oliver Wyman in 2003, Mark had already worked for 14 years in the P&C insurance industry, notably in the actuarial practice of William Mercer and previously for the major broker Marsh & McLennan. He has frequently represented MMC through public presentations on subjects relating to the economic optimization of (re)insurance, enterprise risk management, and actuarial and statistical methods as EVT applied to operational risk management.
EDUCATION
BA in Mathematics from Wayne State University – Detroit, MI
8
MARSH IAN MACARTNEY Managing Director – Marsh New York, NY | 212-345-0289 | [email protected]
CURRENT RESPONSIBILITIES
Ian joined Marsh in 2006. His current responsibilities include COO for all of Marsh’s US business lines, along with direct management of various Specialty business lines, including the Marsh National Flood service center which places 100% NFIP coverage for Commercial clients. The Flood service center recently obtained NFIP’s flood broker of the year, a first in the Brokerage industry.
EXPERIENCE
Ian joined the firm in following 19 years on the Insurance Carrier side of the business with AIG and Prudential UK.
Ian’s previous roles have allowed him to work in many regions in the world, developing insurance capability, Insurance startups or new product development. Including management of a global placement unit into the Lloyds market for Marsh Bowring, which developed and placed diverse coverage solutions for all lines.
Key specific areas of excellence:
Strategic Leadership
Project leader for the restructuring of the Marsh US placement business, moving this from 14 Hub locations to 6 key city locations within 12 months, with savings of $12M net and reducing headcount substantially, while integrating a National placement system to track all transactions.
Carried out full operational review in China (AIU) that lead to the development of a system driven marketing distribution channel throughout China.
Reduced ALICO agent retention across 52 countries and 30,000 agents from 160% to 73% over 14 months, increasing sales retention and profitability.
Operational Efficiency
Developed, designed and rolled out a US National Casualty modeling system in order to de-risk Marsh and build true analytics between our clients and markets.
Developed and streamlined the Marsh US Flood practice to an online business with 20%+ growth over the last 5 years and 60%+ profit margin.
Developed Marsh US contract certainty process, rolled this out across the country, in addition to developing state of the art binder and policy checking technology.
Business transformation
GM in ALICO Mexico life business for a period of time, turning a $20M deficit in sales, to a positive result in 8 months.
Developed and implemented an electronic trading platform via the retail sales force, wholesale and the Lloyds market. Achieved a positive NOI in 2006 from a -17% NOI in 2005. (Marsh UK)
Facilitated on-sight quality improvement projects for distribution, operations, training, sales management and internal processes worldwide, In 5 regions and
9
over 20 countries. (AIU and ALICO)
Diverse Industry experience and Innovation
Developed Industry first Global supply chain product. (Marsh US) Head of Global benchmarking team, launched industry first real time Property,
Casualty and Financial lines benchmarking system. (Marsh US) Developed a US wholesale strategy producing $4M+ increased revenue in first
8 months. (Marsh US)
Leadership and Talent management
Designed and executed global career structure for all functions including underwriting, claims and engineering. (AIU)
Built and implemented a worldwide recruitment strategy and developed the bench strength for critical positions along with development for the key staff selected. (AIU)
Developed successful teams in various disciplines in sales, operations, and placement and advisory functions. (All organizations)
Delivering profitable NOI
Property practice grew year over year and was above budget every year, also reduced operational costs by $20M in two years. (Marsh US)
Delivered increasingly profitable business results consistently for the last 3 years in the Marsh US Risk Practices.
Developed and supported the loss control team to implement a global structure and grew GAAP profit from fee income. (AIU)
10
JEB MCPHERSON, CPA, CFF, FCPA Senior Vice President | Marsh Atlanta, GA | 404-995-3000 | [email protected]
CURRENT RESPONSIBILITIES
Jeb McPherson is a senior consultant and FEMA project leader for Marsh Risk Consulting’s Forensic Accounting and Claims Services (FACS) Practice. Based out of the Atlanta office, Jeb’s responsibilities include supervising a staff of experienced professionals in the preparation and review of damages claims, valuations, and examinations where accounting expertise is required.
EXPERIENCE
Jeb joined Marsh Risk Consulting in 2000 as a consultant, focusing his career on investigative accounting and the measurement of damages, with a specialty in FEMA recovery. The services provided include investigations of FEMA claims, insurance claims, fidelity loss analyses, construction claims, fraud examinations, business valuations, and loss of earnings calculations.
Jeb continues to focus his practice in providing forensic accounting services to public entities after major catastrophic events. He has assisted public entities (state agencies, local governments, and private nonprofits) recover millions of uninsured losses from FEMA after declared disasters. Jeb is well versed in the Stafford Act and understands FEMA’s Public Assistance Guide.
Additionally, Jeb has prepared expert reports on behalf of Public Entities under alternative dispute resolution proceedings including appraisals and mediation.
Prior to joining Marsh, Jeb served as a senior auditor for the Reznick Group and performed independent audits of financial statements.
EDUCATION
BBA in accounting, University of Georgia, Athens
AFFILIATIONS
Certified Public Accountant (CPA)
Certified in Financial Forensics (CFF)
Forensic Certified Public Accountant (FCPA)
American Institute of Certified Public Accountants (AICPA), Member
Georgia Society of Certified Public Accountants (GSCPA), Member
11
AIR WORLDWIDE
DR. BOYKO DODOV. Director of Flood Modeling, Principal Scientist – AIR Worldwide Boston, MA | 617-954-1860 | [email protected]
CURRENT RESPONSIBILITIES
Dr. Boyko Dodov is research hydrologist at AIR and responsible for the design and development of flood models.
EXPERIENCE
Prior to joining AIR in 2005, Dr. Dodov was research associate at the National Center for Earth Surface Dynamics (NCED), University of Minnesota. As an NCED employee he took place in many collaborative research projects including leading experts from MIT, Princeton University and the University of California, Berkeley. Dr. Dodov is the author of numerous papers published in leading peer review journals, related to the interactions between geomorphologic and hydrologic processes with an emphasis on the effect of these interactions on flood statistics.
EDUCATION
Ph.D. degree in Hydrology from the University of Minnesota, St. Anthony Falls Laboratory
B.S. in Hydrogeology from the Higher Institute of Mining and Geology, Sofia, Bulgaria
12
DR. ARTHUR (TIM) L. DOGGETT, IV. Senior Principal Scientist – AIR Worldwide Boston, MA | 617-954-1856 | [email protected]
CURRENT RESPONSIBILITIES
Dr. Doggett is a principal research meteorologist with the weather and climate team at AIR. He is responsible for the development of the Mexico Tropical Cyclone model, as well as working with the U.S. Hurricane and Severe Thunderstorm models. Dr. Doggett has also worked closely with agricultural risk modeling team and supports the data needs of many AIR projects.
EXPERIENCE
Before joining AIR, Dr. Doggett was a professor of Atmospheric Science at Texas Tech University. At Texas Tech, he worked as a member of the Wind Science and Engineering Program developing mesoscale-observing networks, leading mobile field observation of hurricanes and producing state-of-the-art Doppler radar applications.
EDUCATION
PH.D, MS in Geosciences/ Atmospheric Science from Texas Tech University – Lubbock, TX
BS in Meteorology from Lyndon State College – Lyndonville, VT
SELECT PUBLICATIONS
Doggett, Arthur L., IV, 2001. Utilizing an integrated ground-based observing system to study the structure of hurricane wind fields. 2001 Interdepartmental Hurricane Conference. Orlando, FL.
Doggett, Arthur L., IV, 2001. Use of mobile Doppler radar facilities in upcoming hurricane research. 2001 Interdepartmental Hurricane Conference. Orlando, FL.
Doggett, Arthur L. and R. Howard, 2000. Estimates of the duration of damaging winds in selected locations from the May 3, 1999 tornado outbreak, National Symposium on the Great Plains Tornado Outbreak of May 3, 1999, Oklahoma City, OK.
Gilliam, Xiaoning, J. Dunyak, A. L. Doggett IV, and D. Smith, 2000. Coherent structure detection using wavelet analysis in long time-series, Journal of Wind Engineering and Industrial Aerodynamics, 88 (2-3): 183-195.
Schroeder, J. L., W. S. Burgett, K. B. Haynie, I. Sonmez, G. D. Skwira, A. L. Doggett and J. W. Lipe. 2005: The West Texas Mesonet: A Technical Overview. Journal of Atmospheric and Oceanic Technology: Vol. 22, No. 2, pp. 211–222.
Skwira, Gary D., R. E. Peterson, D. A. Smith, C.-B. Chang, and A. L. Doggett, 2002: Surface observations of landfalling hurricanes along the United States Gulf and Atlantic coastline. 25th AMS Conference on Hurricanes and Tropical Meteorology. San Diego, CA.
13
DAVID A. LALONDE, FCAS, FCIA, MAAA Senior Vice President – AIR Worldwide Boston, MA | 617-267-6645 | [email protected]
CURRENT RESPONSIBILITIES
David Lalonde leads AIR's capital market initiatives and manages the Decision Analytics, Reinsurer Client Service, and Regulation and Rating Agency teams. He is also responsible for Consulting and Client Services group providing Catastrophe Loss Analysis Services (CLAS™) and Risk Transfer Services (RTS™) to insurance and reinsurance companies, intermediaries, investors and corporate clients, focusing on helping clients utilize, interpret and integrate catastrophe modeling technologies into effective risk management programs. He is extensively involved in securitization of insurance risk, and extending the use of modeling results through ratemaking, portfolio optimization, risk transfer analysis, and underwriting guidelines. Additionally, he is responsible for ensuring models meet all regulatory standards and regularly assist clients in responding to Department of Insurance requests for information relating to the use of catastrophe models in ratemaking.
EXPERIENCE
Before joining AIR, he was a director of Coopers & Lybrand where he directed a team of actuaries who provided a wide variety of consulting services to insurance companies and self-insured organizations to help them assess and manage their risk. Prior to that, Lalonde was chief actuary at the Insurance Corporation of British Columbia. Lalonde is a past member and chair of the CAS Advisory Committee on Securitization/Risk Financing and a member of the AAA Extreme Event Risk Committee. He has a wealth of experience in the securitization of insurance risk and the use of dynamic financial analysis models for pricing, reserving, and corporate planning. He has appeared as an expert witness in rate arbitration hearings and has provided catastrophe modeling expertise on due diligence teams.
EDUCATION
B.Math. (Honors) in Actuarial Science with Statistics from the University of Waterloo
AFFILIATIONS
Fellow of the Casualty Actuarial Society – FCAS
Fellow of the Canadian Institute of Actuaries – FCIA
Member of the American Academy of Actuaries – MAAA
14
ROBERT NEWBOLD Senior Vice President – AIR Worldwide Boston, MA | 617-267-6645 | [email protected]
CURRENT RESPONSIBILITIES
Robert Newbold is Senior Vice President in the Consulting and Client Services Group at AIR Worldwide. His primary responsibilities include software support, training, and the delivery of catastrophe modeling services to insurers, reinsurers, brokers, the capital markets, governments and private corporations.
EXPERIENCE
Prior to joining AIR Worldwide in 2004, he worked at Deloitte Consulting as a senior consultant to the Pennsylvania Department of Public Works, and as an information analyst at Electronic Data Systems Corp.
EDUCATION
M.B.A. and M.S. in Information Systems from Boston University Graduate School of Management
B.S. in Systems Engineering from the University of Virginia
15
JOHN W. ROLLINS, FCAS, MAAA. Vice President – AIR Worldwide High Springs, FL | 386-454-2241| [email protected]
CURRENT RESPONSIBILITIES
John leads AIR’s Public Risk Services consulting unit, a center of excellence regarding disaster risk handled by public entities. Rollins has authored several prize-winning papers in the journals of the Casualty Actuarial Society. His technical expertise includes personal and commercial lines ratemaking, catastrophe modeling, wind loss mitigation, hazard risk portfolio optimization, reinsurance design, and loss and expense reserving for insurers and self-insurers.
EXPERIENCE
John has 23 years of experience as a U.S. property and casualty actuary in many environments, including personal and commercial lines insurers, consulting firms, a top-tier accounting firm, and an insurance advisory organization. He was chief actuary at both Citizens Property Insurance Corporation, Florida’s state-run property insurer, and Florida Farm Bureau Insurance Companies. He currently serves on the Board of Governors of Citizens.
EDUCATION
M.A. in economics from the University of Florida
B.A. in mathematics from Duke University
AFFILIATIONS
Fellow of the Casualty Actuarial Society – FCAS
Member of the American Academy of Actuaries - MAAA
16
JBA CONSULTING JANE TOOTHILL Company Director | JBA Risk Management North Yorkshire | 44 (0)1756-799-919| [email protected]
CURRENT RESPONSIBILITIES
Jane was appointed as a Company Director of JBA Risk Management at its establishment in 2011, with responsibility for catastrophe modelling and business development in the reinsurance sector. She has 15 years of experience of risk management and probabilistic model development in the insurance industry and joined JBA Group in 2008 to set up its catastrophe analysis division.
EXPERIENCE
Prior to joining JBA, Jane worked as a model developer and project manager at EQECAT, then at reinsurance broker Guy Carpenter, where she set up and headed the European Model Development Team. Jane has also acted as an advisor to Zurich Financial Services via its Natural Catastrophe Advisory Council. Following a PhD in volcanology, her career has included the development of loss models for natural catastrophes ranging from including flood, extra-tropical windstorm, hurricane, hail, earthquake and subsidence.
Particular areas of expertise: Re/insurance risk and catastrophe modelling, project and team management.
EDUCATION
PhD, Environmental Science from Lancaster University
Geology from the University of Bristol
