Probable Maximum Loss for the Florida Public Hurricane Loss Model: Comparison

Abstract

Hurricanes are a way of life in South Florida, where owning a home without windstorm insurance is almost an impossibility. Insurance premiums for windstorm loses are computed through the use of complex mathematical models called catastrophe (cat) models. When they were first developed, cat models focused on the calculation of average annual loss due to wind. However, with exposure increasing rapidly along the coast of South Florida, it is imperative for insurance companies to protect themselves from the “once-in-100-year event”; in other words, probable maximum loss (PML). Gulati et al. (2014) investigated the computation and distribution of probable maximum loss in the case of personal residential structures for version 5.0 of the Florida Public Hurricane Loss Model using parametric and nonparametric methods. Here, the authors investigate the computation of probable maximum insured losses for personal and commercial residential buildings in version 6.1 of the model using the same methods. The authors also compare how PML values for total insured loss have changed between the two versions.