Catch-up with a Catastrophist – Why we should be modelling the past stochastically
FASS are pleased to welcome Dr Gordon Woo, whom many in the Scottish actuarial community (particularly Heriot Watt alumni) may know from his prior talks on Terrorism Risk.
We're especially excited to host networking with Dr Woo after the talk, where you can pick his brains on all your catastrophe related queries!
Disaster risk analysis tends to be based on actual loss experience. The past is traditionally treated as fixed by actuaries, after all it cannot be changed! But from a scientific perspective, history is just one realization of what might have happened, given the randomness and chaotic dynamics of Nature. Therefore, it would seem a stochastic, rather than deterministic, view of the past is more appropriate.
Already, stochastic simulation of the past has given crucial insight where it has been undertaken to investigate past disasters and crises. Extended more broadly, counterfactual risk analysis can explore the near miss disasters that almost happened or might have happened before, and reveal insurance loss surprises otherwise hidden from disaster catalogues.
Among the alternative versions of history are situations where things had turned for the worse. These are termed downward counterfactuals, in contrast with upward counterfactuals where things had turned for the better. The Ebola crisis of 2014, and the outbreak of Middle East Respiratory Syndrome in 2015 provide salutary examples of downward counterfactuals for life insurers.