What is it… …and why you should care

Trey Apel

Alumni Student Careers Forum

March 16, 2012

Catastrophe Modeling:

What is it…

…and why you should care.

Plus a few words about getting a job

© 2012 Risk Management Solutions, Inc.

My “Resume”

2

Geology

Geodesy Seismology

2001 - Idaho

2003 - Berkeley

2006 Berkeley

2008 Geomatrix

Today RMS


Founded at Stanford University in 1988 in Silicon Valley, California

Currently headquartered in Newark, California with offices in the

U.S., U.K., France, Switzerland, Japan, Bermuda, India, and

China

Multi-disciplinary skills, from science and engineering to insurance

Solely focused on risk management issues

Independent and objective information source – financially

detached from the insurance industry

Provides catastrophe risk management and quantification

solutions to the $1 trillion dollar global insurance industry

Introduction to RMS

3

© 2012 Risk Management Solutions, Inc. 4

“ At RMS, our goal is to help manage catastrophe risk

through the practical application of the most

advanced quantitative risk assessment techniques

available.”

- Hemant Shah, President & CEO


RMS Evolution

5

Founded at Stanford University

RiskLink®-ALM for treaty reinsurers;

London office opens

Models cover 40 territories

California

Earthquake model

1988

U.S. Earthquake and Hurricane models

Models cover 12 countries

RiskLink®-DLM

U.S. Hurricane model

Expanded to weather risk

1994 1996 1998 2000 1990 1992 2002 2006

Terrorism & Workers Comp

models

Models cover 42 countries

Purchased by Daily Mail

International Geocoding Accumulation

Updated U.S. Hurricane

model

Updated Europe Windstorm

model

2004 2008

New U.S. & Canada climate hazard models;

data quality solutions

2010

Upgrade of North America Earthquake and significant

expansion of Latin American Earthquake

models

2012

Upgrade and significant expansion of North Atlantic

hurricane models; Upgrade to Europe Windstorm model

Enterprise Grid Computing


50 +

31-50

11-30

1-10

Toronto

ChicagoCincinnati

Minneapolis

Denver

MontrealVancouverSeattle

Sydney

Melbourne

Perth

ZurichMilan

MadridLisbon

Athens

Istanbul

Ramat-Gan

Dubai

MunichBudapest

Paris

Rotterdam

Brussels

Copenhagen

Oslo Stockholm

San Francisco

Los Angeles

Hong Kong

Bangalore

SingaporeKuala Lumpur

PhiladelphiaCharlotteAtlanta

Houston Miami

BostonNew York

London

Dublin

Bermuda

San JuanCayman Islands

Barbados

Mexico City

Bogota

Honolulu

Sao Paulo

Tokyo

RMS Offices

6

Number of Client Offices in Major Cities*

*Excluded multiple campuses of one company in the same city

Newark, CA

Hoboken, NJ

Bloomington, MN

Peoria, IL

London

Zurich

Beijing

New Delhi

Tokyo

Bermuda

Paris


What is Cat Modeling?

7


A Risk Solution

Catastrophe – an event causing great and often sudden

damage or suffering

Modeling – process of generating abstract, conceptual

graphical, or mathematical approximations of natural

phenomena

Why model catastrophes?

Because they are devastating and we haven’t observed

enough of them.

8


Earthquake Insurance: The Dilemma

Limited historical experience

Large earthquakes typically under-

represented in the historical record

(long return periods)

Insurance companies cannot rely

on past loss experiences to

understand the financial

implications posed by large,

damaging earthquakes

California earthquake insurance

premium collected and losses

paid each year 1970-1993

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Losses Paid

Premium Collected


0

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Losses Paid

Premium Collected

Earthquake Insurance: The Dilemma

California earthquake insurance

premium collected and losses

paid each year 1970-1994

Limited historical experience

Large earthquakes typically under-represented in the historical record (long return periods)

Insurance companies cannot rely on past loss experiences to understand the financial implications posed by large, damaging earthquakes

1970–1994:

premium collected $4 billion

losses paid $8.3 billion

Post-1994

Total losses > $12 billion


At the Birth of Cat Modeling: Northridge EQ - 1994

Unknown blind thrust fault beneath

highly populated San Fernando Valley

In accumulation zone, risk assumed to

be 80% commercial but 60% of loss

was residential

Exposure data information incomplete

Appurtenant structures found to be

twice the value and twice as vulnerable

Widespread welding failures at the

beam-column connections of 2,000

steel moment-resisting frame structures

Losses were 28 times the collected

1993 premium and took 18 months to

reach $15 billion

In March of 1994, 10-12% of property

insurers used Cat models


Before Cat Modeling: Hurricane Andrew - 1992

$17 billion in claims from 65% of homeowners

11 insurers went insolvent

The Florida Insurance Guaranty Fund had to issue bonds to cover claims

South Florida insurance rates increased 300% while the rest of state increased 100%

More than 1 million Floridians non renewed

$4.2 billion in capital invested in 12 new reinsurers between Hurricane Andrew and January 1994

– Emergence of new generation of technical reinsurers founded on modeling


Statistical vs Numerical Models

Statistical models (e.g. track model) are good at:

– extrapolating simple historical databases

– Evaluate trends and take them into account

Statistical models fail to model very complex/high dimensional

phenomena

Dynamical models (e.g. Global Circulation Model) are good at:

– Modelling complex systems governed by physical laws

– Create new events

Dynamical models have many biases and take a long time to run...

Strategy: use dynamical models, correct with statistical

techniques


Why are catastrophe risk models a solution?

The historical record of events is not complete and must be

supplemented

Models provide a representation of complex physical

phenomena

Models allow for the calculation of future expected loss and the

quantification of uncertainty around results

Models provide a common framework and/or metric for

describing behavior or results


“ All models are wrong, but some

prove to be useful.” Prof. George Box (1979)


Peril Breakdown of Insured Losses

Hurricane$14.2 Bn

44%Tornado/Hail

$8.5 Bn26%

Flood$3.0 Bn

9%Earthquake

$2.8 Bn9%

Wildfire$0.7 Bn

2%

Winterstorm$1.8 Bn

6%

Terrorism$1.4 Bn

4%

Peril breakdown for U.S.

Hurricane dominant peril


Global Catastrophe Modeling Capabilities

Earthquake Hurricane

Severe

Convective

Storm

Windstorm

Europe

Latin

America

Asia

North

America

Middle

East

Oceania

Winter

Storm Flood Terrorism Pandemic Longevity


Vulnerability Exposure

Hazard

Modeling Natural Disaster Risk

RISK


Modeling Framework

Assess Wind

Speed Calculate

Damage

Define Windstorm

Event

Quantify Financial

Loss

90%$ Loss

Stochastic

Module

Hazard

Module

Vulnerability

Module

Financial

Module

Assess Ground

Motion Calculate

Damage

Define Earthquake

Event

Quantify Financial

Loss

90%$ Loss


Hazard

– Stochastic event set: a set of discrete events covering all possible combinations of type (what is it?), location (where is it?), size (how big is it?) & recurrence (how often does it occur?)

– Ground motion: amplitude and frequency content as earthquake attenuates (considering site conditions)

Exposure

– Property at risk at „highest‟ resolution possible, considering construction, occupancy, year built, number of stories for model peril region

Model Components

Exposure

Hazard

20


Vulnerability

– Relationship between ground

motion and damage, captured

as a Mean Damage Ratio

(MDR) = Average Loss /

Replacement Value

– Damage by insurance coverage

(building, contents, BI)

Loss

– Event loss distributions,

measuring loss to location,

policy, portfolio losses

– Annual loss distributions,

combining all event losses to

arrive at an annualized

distribution

Model Components (continued)

Vulnerability Loss

21

Exposure

Vulnerability Function for Reinforced Concrete (RC) Building

Ground Motion Measure

Me

an

Da

ma

ge

Ra

tio

Mean

Uncertainty

Distribution


An

nu

al

Pro

bab

ilit

y o

f E

xceed

en

ce (

%)

Loss Amount

0

2

4

6

10

8

0 50M 150M 250M

100 year loss = $130 million

or

1% chance of exceeding

$130 million

Quantitative Measurements

for Portfolio Management

Average Annual Loss (AAL)

– Expected loss over time used as

the baseline for pricing

Exceedance Probability (EP)

– Probability of exceeding a loss

threshold like 100 year loss

– Quantification of tail risk

– Solvency measurement

Statistical Variance

– Measurement of uncertainty

– Used to develop risk loads


What do I do?

23


Earth Science

Define Events

90%$ Loss

Assess Ground Motion

Calculate Damage Quantify Risk

Create a set of earthquake events that characterize long-term probabilities.

Calculate the average damage and associated uncertainty.

Calculate the ground motion for all sites due to each stochastic event.

Calculate the financial impact for all perspectives.

24


Earthquake Rupture

Hokudan-Town Earthquake Memorial Park

Source: Geologic Survey of Canada

Hypocenter

Epicenter

Rupture Area

Rupture Length


Event Definition: Seismic Sources

Zone Sources & Faults Events


Event Definition: Recurrence

Total amount of event

rate is constrained by

plate motions.

Magnitudes tied to the

area or length of the

structure generating

earthquakes.

Relationship of small to

large earthquakes

based on historical

observations.

http://geopubs.wr.usgs.gov/fact-sheet/fs152-99/


Peak Ground Acceleration (PGA) Amplitude

Duration

Time

Ground Acceleration Time History

Ground Motion Assessment: Site Response

Key characteristics of earthquake ground motion records:

– Amplitude: How strong?

– Frequency: How periodic?

– Duration: How long?


Peril Anatomy: Earthquakes

Impacts on locations

Ground shake and

displacement damage buildings.

Tsunami inundation.

Landslides and liquefaction.

Damage to contents caused by

shaking and structural failure.

Sprinkler system failures

(leakage).

Fires following the earthquake.

Lifelines and business

interruption.


The March 11, 2011 Tohoku Earthquake Quest for “real-time” hazard maps

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Tectonics and Event Details

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~90 mm/yr

Pacific Plate Philippine Sea

Plate

Okhotsk Plate

March 11, 2011 MW = 9.0 4th largest ever recorded Rupture Area: 150 km x450 km Max Slip: ~60 meters Max Tsunami Runup: 35 meters How does an event this large and unprecedented affect all other faults around it?


Hazard Change Framework

32


Focus on Rate Changes

Define Events

90%$ Loss

Assess Ground Motion

Calculate Damage Quantify Risk

Create a set of earthquake events that characterize long-term probabilities.

Calculate the average damage and associated uncertainty.

Calculate the ground motion for all sites due to each stochastic event.

Calculate the financial impact for all perspectives.

33

Earthquake: Mw 7.4 Izmit Turkey 1999


Show output (faults with colors)

Stress Change Framework

34

Input Faults

+ =

Slip Model

Stress Change


Multiple Slip Models

35

Last Seismic GPS Tsunami Moment

(Nm) Magnitude

(MW) Min Depth

(km) Max Depth

(km) Max Slip

(m) Strike Dip Rake

Simons X X X 3.63E+22 9.0 7.2 75.3 59.8 VAR VAR VAR

Ammon X X No 3.90E+22 9.0 1.0 41.5 41.0 202 12 85

*Wei X X No 4.37E+22 9.0 5.4 47.6 30.0 201 14 VAR

Lee X X No 3.67E+22 9.0 4.7 57.9 56.1 195 14 VAR

Shao X No No 5.80E+22 9.1 7.5 42.0 59.8 199 10 VAR

Ide X No No 4.50E+22 9.0 0.0 42.3 23.8 190 10 90

Hayes X No No 4.90E+22 9.1 7.5 52.5 33.4 195 10 VAR

Yagi X No No 5.70E+22 9.1 5.3 46.9 51.2 200 12 85

Pollitz No X No 3.59E+22 9.0 3.0 57.0 38.0 195 VAR 90

Fujii No No X 3.80E+22 9.0 0.0 48.4 47.9 193 14 81

Fujii No No X 3.80E+22 9.0 0.0 48.4 37.8 193 14 81

*Toda Used Wei et al., 2011 slip model Stress changes reported and published directly

*ERC Stress changes measured from GPS Stress changes reported and published directly


Extent of Slip Models

36


Mean Stress Changes

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Stress Change Uncertainty

38


Convert Static stress

change to rate change

Must have a priori

knowledge

– Return period of event

– Magnitude recurrence /

average stress drop

– Background stressing

rate ∝ fault slip rate

Adjust time dependent

or Poisson model

Rate Change Framework

39

From Parsons JGR, 2005

Poisson


Changes in Risk

40


Rate Change From Seismicity Analysis

41

Historical Seismicity

Aftershocks

Tokyo Region


Changes in Risk – Incomplete?

42

?

Rate Changes From:

Static Stress Changes

Seismicity Rate Changes

= +

FAULT SLIP RATE VARIABILITY AND

CONSEQUENCES FOR SEISMIC HAZARD AND SEISMIC RISK IN

JAPAN RESULTING FROM STATIC STRESS CHANGES

FOLLOWING THE M9.0 TOHOKU EARTHQUAKE

Edwin Apel

Uncertainty in the Estimation of Earthquake Hazard

Thursday, April 19th 11:30 AM Oral Pacific Salon 3

http://www2.seismosoc.org/FMPro?-db=Abstract_Submission_12&-sortfield=PresDay&-sortorder=ascending&-sortfield=Special+Session+Name+Calc&-sortorder=ascending&-sortfield=PresTimeSort&-sortorder=ascending&-op=gt&PresStatus=0&SpecialSessionNumberCalc=21&-lop=and&-token.1=ShowSession&-token.2=ShowHeading&-recid=680&-format=/meetings/2012/abstracts/sessionabstractdetail.html&-lay=MtgList&-find









And now for something completely different

The Quest for employment…

…or things I wish someone had told me.

43


…just maybe not the one you want…

www.getgeologyjobs.com

LinkedIn – Join groups look for job postings

Check career postings of companies you want to work for

Talk to people that are already employed

What’s the catch?

You may have to relocate

The job might not be your dream (or preferred) job

You‟ll have to take less than you think you‟re worth

Don’t believe the hype – there are LOTS of jobs

44


Don’t believe the hype – there are LOTS of jobs

45


Getting a job with only a BS is hard

– BS is like a cell phone, everyone has one

– But a geology degree is like an iPhone

Without advanced degrees you will hit a career ceiling within ~5 years

MS and PhD show specific focus and direction

– Most research Earth Science programs are funded

Don‟t get an advanced degree from the same place as your undergraduate

Pick a graduate program with an end goal in mind

– Graduate school is temporary, think past it

– Does the program help you get you where you want to be

So just “No” and stay in school

46


Stuff You Love To Do

Stuff Someone will pay

you to do

Stuff You‟re good at

Figure out what you want to do

Figure out what you don’t want to (or won‟t) do

Figure out what you are willing to do

What topics excite you

– Are those topics marketable?

Where do you want to be in 2,5, or 10 years

– Not just career, location, salary, personal freedom,

family, etc.

Accept that you will likely have to make short-

term sacrifices for long-term goals

– What are you willing and not willing to sacrifice?

Figure out who you are and want to be

47

Dream Job


Geologist in Training (GIT)

– Fundamentals of Geology National BS Geol.

Professional Geologist (PG)

– Practice of Geology National 3 years

– California Specific Section State 3 years

Certified Engineering Geologist (CEG) +3 years in field

Certified Hydrogeologist (CHG) +3 years in field

Professional Geophysicist (PGp) +3 years in field

Take exams as soon as possible

Only have to take test one time

California is the hardest in the country

– reciprocity for other states

Professional Registration – Do it!

48


Make a Master resume and cover letter with everything on it

– Do NOT create a general resume

– Tailor specific pieces for each application you submit

– Restate parts of the job description in the resume and cover letter

Avoid complete sentences and repetition of words

Try to submit only one page resumes

Make PDFs not word documents

Create a text only version for online submission

Avoid “obnoxious flash”, be careful with graphics

Write a good cover letter

Edit, edit, edit!

Resumes and Cover Letters

49


Google yourself (every job you apply for will)

Clean up or make your online profile private

Update your LinkedIn profile make it clean and professional

Don‟t submit and forget, Be proactive!

Network, Network, Network

– 80% of employed people have a job because of who they know

– Alumni

– Meetings, ask people to introduce you

– Friends of friends

Visit companies

Take internships or other unpaid jobs

Getting in the door

50


Follow all instructions

Prepare for an interview like you would a test

Don‟t lie about anything

Be organized, prepared, and interested

– Ask questions about the company and people

Pester professionally, stay proactive

Make yourself memorable

– Website, business card, usual hobby

Make it easy to hire you

– Relocateable? YES!

– Ok working weekends? YES!

Getting the job

51


Questions?

52

Documents

What is it… …and why you should care