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by sxzxs
2032 days ago
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For me, it comes down to what kinds of these risky models are most interesting. Some can be interesting because of potential profit or minimizing loss (financial or actuarial) and others are inherently (theoretical physics). To add to your tail risk point - I wonder how many people foresaw the Venezuelan oil crisis way back when, or even less likely, the Saudi Arabian oil complex attack in 2019. And of course, the current situation we're in with CoVID that an entire university of forward thoughtful looking people didn't call until it was a week away. As an aside, do insurance companies significantly alter their policies when such a cat-5 hurricane is imminent? What preparations would they make in the face of that sort of event? Are you talking about chaos theory in the last paragraph? I'll read that article you linked in a bit and see what more I have to say, from skimming through it looks as though my question from the previous paragraph may be answered. |
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You cannot retroactively alter a policy, for obviously good reasons. The main preparation policy-wise is that insurance companies do not knowingly write new policies in the affected area when disaster is ongoing or imminent. Reinsurers will also avoid writing new treaties (which is what a standard reinsurance policy is called) -- for these reasons the Florida cat reinsurance market is typically dominated by policies that incept on June 1st and run to May 31st of the next year.
Internally, the companies will start modeling what they think their potential losses will be almost immediately, as investors expect a fairly quick turnaround on getting initial loss estimates out the door.
There's a fairly new paper here, albeit not yet peer reviewed, on the promise of maximum entropy models in an actuarial setting. The appendix has references to the earlier papers: https://www.casact.org/pubs/forum/20wforum/07_Evans.pdf