Modelling of Insured Losses of Natural Catastrophes Using Block Maxima Model

Abstract

Catastrophic events have a huge impact on society as a whole. Insurance, or reinsurance is one way of reducing the economic consequences of catastrophic events. By Sigma Swiss Re criteria the event can be noted as a catastrophe when the economic losses, insured claims or casualties associated with an event exceed just one of the thresholds. These thresholds are updated every year. We can observe a growing trend in both the number of catastrophic events as well as in total economic losses and insured losses too. Risk management of insurance and reinsurance companies have to have available relevant information for estimation and adjusting premium to cover these risks. The aim of this article is to present one of the useful method – block maxima method. This method uses information from historical events about insured losses of natural catastrophes and estimates future insured losses. These estimates are very important for actuaries and for risk managers as it is one of the bases for calculating and adjusting premiums of products covering these types of risks.