Catastrophe risk modelling specialist Karen Clark & Company (KCC), has launched a new version of its US Severe Convective Storm (SCS) model, with the firm indicating that this update is expected to provide the accuracy and stability required by reinsurers and ILS investors for capital allocation concerning the severe thunderstorm peril.KCC said that Version 4.0 of its SCS model expands on the advanced physical modeling techniques that the organisation has introduced for this emerging peril.KCC says that SCS losses tend to dominate annual weather-related insured property losses in the United States.The firm explained that the older catastrophe modeling technology that’s still being used by many reinsurers and insurance-linked securities (ILS) investors today does not provide credible loss estimates for severe convective storms, and that these models tend to produce large swings in loss estimates.

Therefore, KCC’s scientists built a physics-based model to consistently and accurately capture the complexities of these storms.The firm’s SCS model is based on high-resolution 4D physical models of the atmosphere, rather than statistical extrapolations of historical data.As well as this, the company’s scientists leverage a physics-based approach that incorporates all atmospheric variables that helps drive SCS to produce high-resolution footprints for hail, tornadoes, and straight-line winds.

The firm highlighted that although the overall loss estimates have not changed significantly, with the release of Version 4.0, KCC scientists have been able to further enhance location-level loss estimates, particularly for the hail sub-peril.One of the model’s key features is that it provides daily high-resolution hail and tornado/wind footprints that insurers can use to estimate their claims and losses by day and event and aggregated by month and year.Karen Clark, KCC Co-Founder and CEO, commented: “The KCC SCS model provides the accuracy and stability that reinsurers and ILS investors require to confidently offer capacity for this peril, which dominates weather-related claims in the US.

Adding: “Along with traditional applications such as pricing and underwriting, the KCC SCS model provides the mechanism for innovative modeled loss trigger (MLT) transactions—hybrid reinsurance contracts that sit between indemnity and pure parametric deals.” KCC further clarified that the MLT provides a comparable degree of transparency and objective payouts as pure parametric contracts, yet significantly reduces basis risk for insurers.Furthermore, KCC also noted that the updated model includes additional secondary building characteristics that further enhances the accuracy of the loss estimates for both the hail and tornado/wind sub-perils, and provides explicit support for Roof Actual Cash Value endorsements.Glen Daraskevich, KCC Senior Vice President, said: “As with all KCC models, changes to the loss estimates are fully transparent and serve to fine tune the losses by geography and other location-specific variables.

Because of more advanced and modern technology, KCC model updates do not produce volatile changes in loss estimates and are not disruptive to pricing and underwriting decisions and strategies.”.All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.Our can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.