Liability
Casualty catastrophes, such as the roof collapse at Charles de Gaulle airport or liabilities emanating from the subprime crisis, cause simultaneous losses to several separate policies, with little warning and unhappy financial results for the insurers and reinsurers. Arium's Casualty Catastrophe model, developed for Guy Carpenter, treats an insurance portfolio, which can contain hundreds of thousands of individual insurance policies, as a network. Each policy covers a company that performs a particular activity, from chemical manufacturing to finance. Each of these activities carries the potential for errors - errors that can create liabilities for the insured company.
Companies linked by a) similar activities or b) participation in the same supply chain are also likely to have linked liabilities, as each company in that network of activities is likely to be affected by the same external trigger. The extent and nature of the connectivity between insurance policies can be measured on a number of criteria to give an idea of the overall vulnerability of the portfolio to a catastrophic loss and individual scenarios can be run against particular potential exposures.