Open Access Article SciPap-1017
The Models of Extreme Insured Losses Due to Natural Catastrophes
by Pavla Jindrová 1,*

1 Faculty of Economics and Administration, Institute of Mathematics and Quantitative Methods, University of Pardubice, Studenská 84, Pardubice 53210, Czechia

* Authors to whom correspondence should be addressed.

Abstract: Special methods are used for modelling of extreme values. The aim of this article is application of the two most commonly used methods and demonstration of the use of these modelling for the insurance practice. These are the block maxima method and the peaks over threshold method. These methods are applied to real data of insured losses due to natural catastrophes. The analysed data were published by reinsurance company Swiss Re on their website. Data from 2014-2016, when 218 catastrophic events occurred due to natural influences, are used. According to the reinsurance company Swiss Re the event is classified as a catastrophic event, if the loss exceeds at least one of the limit of which relates to economic losses, the insured losses or limits on the number of casualties. The financial stability of insurance and reinsurance undertakings is affected by insured extreme losses. Therefore, the knowledge of probabilistic models of these extreme values is important. Based on the estimated parameters of these models, it is possible to estimate the amount of future insured losses due to natural catastrophic events. This information is important for the risk management of insurance and reinsurance undertakings to set and update premiums.

Keywords: Model, Catastrophic Events, Block Maxima Method, Peaks Over Threshold Method, Insured Losses, Natural Catastrophe

JEL classification:   C15 - Statistical Simulation Methods: General,   G22 - Insurance • Insurance Companies • Actuarial Studies

SciPap 2020, 28(1), 1017

Received: 18 December 2019 / Accepted: 29 April 2020 / Published: 30 April 2020