Typology and Design of Parametric Cat-in-a-Box and Cat-in-a-Grid Triggers for Tropical Cyclone Risk Transfer

Typology and Design of Parametric Cat-in-a-Box and Cat-in-a-Grid Triggers for Tropical Cyclone Risk Transfer

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The insurance industry has used parametric solutions to transfer catastrophe risks since the 1990s.Instead of relying on a lengthy process to assess a claim, these products pay the insured a pre-agreed amount if the physical characteristics of the event fulfill pre-defined conditions.Cat-in-a-box or cat-in-a-circle triggers, commonly used tools for tropical cyclone risk transfer, provide a payout to the insured if the track of a hurricane crosses the perimeter of a geographic area defined by a polygon or a circle with a certain intensity.

Cat-in-a-grid solutions are novel and more sophisticated.They rely on a set of multiple cat-in-a-box triggers arranged on an orthogonal grid.The consideration of multiple geographic domains instead of a single box or circle is Engine Air Box Pre-Filter helpful to reduce basis risk, i.

e., the difference between the parametric loss estimate and the target loss.In the case study for Miami presented here, for instance, a cat-in-a-grid solution showed 18.

5% less basis risk than a typical cat-in-a-box alternative.To organize the different types of triggers within a common framework, we classify the existing alternatives based on whether they use a single geographic domain (like a box or a circle) or multiple domains (like a grid).We discuss their advantages Fat Burners and disadvantages and describe the process required to calibrate any one solution with the help of a catastrophe-risk model.

We focus, in particular, on the analysis and construction of cat-in-a-grid triggers, the alternative that we believe offers the greatest potential for global standardization and adoption.