What is Swiss Re’s TCNA model?

Simply put, the TCNA model is our way of understanding a particular location’s exposure to hurricanes in the North Atlantic. It is also used to understand this location’s contribution to Swiss Re’s overall North Atlantic hurricane risk. With this knowledge, we can put a dollar value on tropical cyclone risks across that region.

How does it work?

We use a scientific, data-driven approach for our models. To estimate the current intensity and frequency of tropical cyclones, their wind speeds at landfall and beyond, as well as the impact of accompanying flooding, we use data on tropical cyclone tracks, flood zones, surge inundation and detailed insured loss experience, to name a few factors.

We also make sure we include the most recent developments from the broader risk landscape – such as the latest climate change insights, as well as trends such as urbanisation, demographics and economic changes. We then calculate the interaction of these factors across the assets we will insure. This way, we can develop a deep understanding of the economic impact of a tropical cyclone on a given location, or on a specific risk. 

Why is this important?

Having a strong model means we have confidence in assessing our exposure to hurricanes, price new business and set the amount of capital we need to stay financially strong in this type of business.

What is special about this update?

The new model has two pieces of work that we are very proud of. The first is the enhanced way we look into secondary perils – particularly flood and storm surge patterns. In recent years, we have seen that these factors play an increasingly significant role for economic and insured losses. However, they come with exceptional challenges in modelling. Scientific and computational capabilities have improved considerably in recent years, allowing us to more confidently include these aspects in our risk view. 

We have also developed a much more holistic view of the risk landscape. So, for example, the model can incorporate the way cities have evolved, factoring in aspects such as the ability of urban areas to absorb water when a flood occurs. We also explicitly consider social and claims inflation effects that were observed in recent years.

Who will benefit from this update?

Our clients can benefit from robust risk assessment, which is the backbone of stable and cost-efficient reinsurance support. It also shows our investors and rating agencies that we can properly assess hurricane risk and write better quality business based on the latest scientific and engineering knowledge. It is especially important for our regulators, who need to understand how much risk we have, and how much capital we need to stay financially strong.