Two examples of this procedure

Example 1

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  Estimate of the overall losses on the basis of known insured losses using the factor of insurance penetration, a value that is known for all markets and for all the various types of event. This method factors in the type of natural hazard, the region of a country affected (urban, rural, population density, quality of buildings), and the classes of insurance business that were affected by losses. This information is the basis for a realistic loss estimate (Graphic: Example of a loss estimate: Hurricane Ivan).

Example 2

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  If insured losses are not known, as is frequently the case in developing countries, Munich Re’s loss estimate is based on the following parameters: type and duration of the natural catastrophe, region affected (urban, rural, population density, property, infrastructure, and public utilities, the number of people involved, and the death toll. On the basis of this data, an approximation technique then searches for all comparative catastrophes in the affected region for which there is detailed and reliable information on overall losses. The events are clustered and realistic values derived for individual units (e.g. average value of a residential building in a rural area). In this way, the event can be assigned to a certain category of loss.

In order to determine the extent of the loss, all events were assigned to one of seven categories of natural catastrophe. Catastrophe category 0 was disregarded for the purposes of our analysis, as it is used for natural events which have little or no economic impact. The remaining events were divided into three main categories:

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  Small-scale and moderate loss events (categories 1 and 2)
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  Severe and major catastrophes (categories 3 and 4)
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  Devastating and great natural catastrophes (categories 5 and 6)

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