Seminar by Lisa Gao

Please Note: This seminar will be held in-person.

A spatial factor copula for replicated weather property insurance loss data

The localized nature of severe storms leads to a concentration of correlated risks that can substantially amplify aggregate losses. We propose a spatial factor copula to characterize the dependence between property insurance claims arising from a common storm when analyzing its financial impact. The factor copula captures the spatial dependence among properties that decays with distance, as well as the aspatial dependence induced by the common shock of experiencing the same storm. The framework allows insurers to flexibly incorporate the observed heterogeneity in marginal models of skewed, heavy-tailed, and zero-inflated insurance losses, while retaining the model interpretation in decomposing latent sources of dependence. Using replicated spatial hail damage insurance claims data from a U.S. insurer, we demonstrate the effect of dependence on reinsurance and retention decisions.