Models for earthquake insurance and reinsurance evaluation

The authors explore developments underway to provide simplified models for earthquake insurance and reinsurance evaluation. To make the calculation of the riskiness of an earthquake portfolio less computer intensive, they have resorted to classical risk theory, which evaluates the risk to a portfolio through a limited set of random variables: initial surplus, premium income and earthquake loss. The result of this evaluation is a rapidly calculable earthquake risk index. To make this evaluation, classical measures are first computed of dispersion, coefficients of variation and skewness, for earthquake loss distributions. Then traditional actuarial methods are used to derive this classical index of earthquake risk or financial strength.