Realistic Disaster Scenarios (RDS)
Lloyd’s has developed a number of Realistic Disaster Scenarios (RDSs) to stress test both individual syndicates and the market as a whole to see how they stand up to exposure to extreme events. These event scenarios are detailed each year by Lloyd’s and used to assess both aggregate market exposures and the exposure of each syndicate to those specific events.
Every syndicate is required to prepare syndicate-specific scenarios according to the type of business it writes. For Lloyd’s, the RDSs form an input to capital setting and facilitate the monitoring of aggregated exposure to specific catastrophe scenarios at a market level on a gross and net basis. This enables Lloyd’s to understand existing reinsurance protections and profile prospective reinsurance assets. The current 18 scenarios are listed in Table 12.
Table 12 – Realistic Disaster Scenarios
Specific Event-Based Scenarios
9 10 11 12 13 14 15 16 17
Two Event Florida Windstorm California Earthquake New Madrid Earthquake European Windstorm Japanese Earthquake Terrorism Gulf of Mexico Windstorm Japanese Typhoon
Generic Scenarios subject to de-minimus tests
1 2 3 4 5 6 7
Marine Event Loss of Major Complex Aviation Collision Satellite Risks Liability Risks Political Risks Alternative RDS: A
Alternative RDS: B
*UK Flood estimates in GBPbn Source: Lloyd’s
The offshore component of the Gulf of Mexico Windstorm RDS has been altered for 2010 to an estimated industry loss of USD4bn (2009: USD5.5bn) due to higher retentions and tighter limits for wind cover sold. All other event- based scenarios remain relatively unchanged.
Reflecting its awareness of emerging risks and the potential effects of climate change, Lloyd’s added a major UK flood to its set of RDSs for 2009. The scenario is based on heavy rainfall resulting in extensive flooding of the River Thames from Oxford to Teddington, with secondary flooding on the River Colne from Ruislip south, and surface flooding on the western and southern edges of Heathrow. The total flood area covers 194 square kilometers and would impact the towns of Oxford, Reading, Slough, Henley and parts of west London. The UK flood RDS generates an estimated industry insured loss of GBP6.2bn. Of this, GBP4.5bn relates to residential losses and GBP1.6bn to commercial losses.