Content area
Full text
1. Introduction
In this work, we use a new approach to study the impact of hurricanes on the property portfolio of an insurance company based on insurance data only. Firstly, we propose a linear model for longitude and latitude, based on the company's loss data, to define the Hurricane trajectory on the mainland. In this approach, we fix the landfall point of the Hurricane as the initial point. Secondly, we use a regression tree model to construct geographical risk classes based on the distance from the affected councils' main cities to the Hurricane trajectory or the Hurricane landfall point. Finally, we add these variables in the (existing) regression models as predictors for claims and loss severity. The final model provides an analysis tool for risk management, namely in assessing losses under different scenarios, according to the company's exposure.
The economic consequences of extreme weather events, such as hurricanes, have become more and more relevant. Table 1 shows that the average annual costs of weather and climate events in the US have significantly increased in the last decades. In Europe, the average costs also increased, mainly from the period of the 1980 to 1990s, and then remained stable during the following decades.
Part of the economic losses from climate and extreme weather events are covered by insurance companies. According to Munich Re [1], in 2021, natural disasters were so destructive that insurance companies worldwide were obliged to pay out more than 120 billion dollars (predicted amount) in compensations, which is the highest value in the last two years. In Europe, the total cost with climate-related and extreme weather events from 1980 to 2020 is estimated to be 487 billion euros (2020 values), 109 billion euros (2020 values) of which were covered by the insurance sector [2].
In Portugal, insurance companies have paid out approximately 478 million euros (2020 values) in compensations from 1980 to 2020. Some of the weather and climate-related events that provoked the highest losses to insurance companies in Portugal in the last years are described in Table 2. It can easily be seen that wildfires in the centre of Portugal in October 2017 were the most costly event. The second most costly event was Hurricane Leslie, for which insurance companies paid out approximately...