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17th of May 2012

New UK terrorism catastrophe model for Solvency II

Vicky Beckett 14/11/2011

Aon has updated its UK terrorism catastrophe model to meet Solvency II requirements.
 
The model estimates the financial loss to life insurers from potential terrorism by simulating attacks on more than 2,000 potential UK targets, including places of worship, financial centers, infrastructure, government and military locations. 
 
The broker is hoping that this will appeal to insurers looking to fulfill Solvency II requirements of gaining a better understanding of exposures and consequently their reinsurance buying strategy.
 
Scott Reid, Life Actuary and reinsurance broker at Aon Benfield, said: “Closer examination of terrorism risk is being driven by upcoming European Union regulatory changes.
 
“Solvency II has been the catalyst to the further development of our terrorism loss model.  Using expert judgment, we help insurers understand their exposures and optimise the transfer of their risks to the reinsurance market.”
 
The consequent impact on an insurer’s exposures is forecasted to assess potential financial losses from injuries and deaths.
 
The model’s realistic method highlights unconventional types of attacks such as chemical, biological and nuclear terrorism consistent with historical records, both globally and in the UK.
 
Adam Podlaha, international head of Impact Forecasting, said: “Working with ex-military and security professionals with real-life experience of the impact of terror attacks means we have been able to build a model based on a set of practical and realistic scenarios.”
 
Damage impact is calculated by modelling dispersion of chemical and radioactive particles, amongst other effects, in addition to blast and thermal impacts.
 
It also assesses the expected effect of state mitigation on frequency in the aftermath of a major attack, in addition to accounting for the dynamic interaction between terrorist groups and prevention agencies.

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