Non-Life Natural Catastrophe Risk | Actuably

Windstorm Risk

€

Earthquake Risk

€

Flood Risk

€

Hail Risk

€

Subsidence Risk

€

Peril Gross Sum

€27 500 000

Before catastrophe peril diversification

−

Correlation Adjustment

€14 742 649

−53.6% of standalone

Capital relief

=

Natural Catastrophe Risk Capital

€12 757 351

After diversification

Natural Catastrophe Risk

Step	Delta	Running
Windstorm Risk	8000000	8000000
Earthquake Risk	5500000	13500000
Flood Risk	6000000	19500000
Hail Risk	4500000	24000000
Subsidence Risk	3500000	27500000
Peril Gross Sum	27500000	27500000
Correlation Adjustment	-14742649.177826926	12757350.822173074
Natural Catastrophe Risk Capital	12757350.822173074	12757350.822173074

Natural catastrophe peril shares

Module	Share	Amount
Windstorm Risk	29.1%	€8.0M
Flood Risk	21.8%	€6.0M
Earthquake Risk	20.0%	€5.5M
Hail Risk	16.4%	€4.5M
Subsidence Risk	12.7%	€3.5M

Natural catastrophe correlation matrix

1.000.00

Natural catastrophe correlation matrix
	WINDWindstorm Risk	EQEarthquake Risk	FLDFlood Risk	HAILHail Risk	SUBSubsidence Risk
WINDWindstorm Risk	1.00	0.00	0.00	0.00	0.00
EQEarthquake Risk	0.00	1.00	0.00	0.00	0.00
FLDFlood Risk	0.00	0.00	1.00	0.00	0.00
HAILHail Risk	0.00	0.00	0.00	1.00	0.00
SUBSubsidence Risk	0.00	0.00	0.00	0.00	1.00

1Step 1

Natural Catastrophe Risk Capital

\textit{Natural Catastrophe Risk Capital} = \sqrt{\textit{Windstorm Risk} \times \textit{Windstorm Risk} + \textit{Earthquake Risk} \times \textit{Earthquake Risk} + \textit{Flood Risk} \times \textit{Flood Risk} + \textit{Hail Risk} \times \textit{Hail Risk} + \textit{Subsidence Risk} \times \textit{Subsidence Risk}}

\textit{Natural Catastrophe Risk Capital} = \sqrt{\textit{Windstorm Risk} \times \textit{Windstorm Risk} + \textit{Earthquake Risk} \times \textit{Earthquake Risk} + \textit{Flood Risk} \times \textit{Flood Risk} + \textit{Hail Risk} \times \textit{Hail Risk} + \textit{Subsidence Risk} \times \textit{Subsidence Risk}}

\begin{aligned}\textit{Natural Catastrophe Risk Capital} &= \sqrt{\textit{Windstorm Risk} \times \textit{Windstorm Risk} + \textit{Earthquake Risk} \times \textit{Earthquake Risk} + \textit{Flood Risk} \times \textit{Flood Risk} + \textit{Hail Risk} \times \textit{Hail Risk} + \textit{Subsidence Risk} \times \textit{Subsidence Risk}}\end{aligned}

2Step 2

Correlation Adjustment

\textit{Correlation Adjustment} = \textit{Peril Gross Sum} - \textit{Natural Catastrophe Risk Capital}

3Step 3

Top Peril Ratio

\textit{Top Peril Ratio} = \begin{cases}0 & \textit{Peril Gross Sum} \le 0 \\ 100 \times \frac{\max(\textit{Windstorm Risk}, \textit{Earthquake Risk}, \textit{Flood Risk}, \textit{Hail Risk}, \textit{Subsidence Risk})}{\textit{Peril Gross Sum}} & \textit{Peril Gross Sum} > 0\end{cases}

\textit{Top Peril Ratio} = \begin{cases}0 & \textit{Peril Gross Sum} \le 0 \\ 100 \times \frac{\max(\textit{Windstorm Risk}, \textit{Earthquake Risk}, \textit{Flood Risk}, \textit{Hail Risk}, \textit{Subsidence Risk})}{\textit{Peril Gross Sum}} & \textit{Peril Gross Sum} > 0\end{cases}

Understand the Non-Life Natural Catastrophe Risk

Overview

This calculator implements the diversified capital requirement for Natural Catastrophe Risk within the Solvency II Non-Life Underwriting standard formula.^[1] The Natural Catastrophe Risk requirement is defined as the economic capital necessary to cover the loss in basic own funds resulting from extreme, low-frequency 1-in-200 year natural hazards.^[2]

Input Terms

Windstorm Risk: The capital requirement for wind-driven natural disasters.^[3]
Earthquake Risk: The capital requirement for seismic activity.^[4]
Flood Risk: The capital requirement for river, coastal, or pluvial flooding.^[5]
Hail Risk: The capital requirement for ice-driven atmospheric events.^[6]
Subsidence Risk: The capital requirement for ground-movement hazards.^[7]

Technical Rationale

The Natural Catastrophe Risk sub-module is calibrated to a 99.5% confidence level over a one-year horizon. Each underlying hazard captures the sensitivity of the undertaking’s basic own funds to a specific localized disaster. The standard formula uses a scenario-based approach, where the requirement is the instantaneous loss in NAV under each prescribed hazard scenario.

The individual hazard results are aggregated using a root-sum-square structure that recognizes limited diversification between hazards. This method reflects the actuarial assumption that while multiple natural disasters can occur within the same year, they are unlikely to reach their 1-in-200 year peak intensity simultaneously across the entire portfolio. The final result represents the diversified natural catastrophe component before aggregation into the total Non-Life Catastrophe Risk.

Important Notes

Embedded Diversification: The diversification between different hazards (e.g., windstorm and earthquake) is already recognized within the aggregation structure of this module.
Gross vs. Net SCR: This calculator determines the standalone Non-Life Natural Catastrophe Risk SCR. Solvency II risk is only finalized as a net impact on Basic Own Funds after diversification in Non-Life Risk, then within BSCR, and after the top-level LAC TP and LAC DT adjustments.
Regulatory deviation: Material deviation from standard-formula assumptions at this layer may support a capital add-on or a move toward an internal model where justified.^[8]
Reporting: The displayed result is intended to support the corresponding standard-formula component feeding the S.25.01.01 standard-formula reporting view.^[9]

Sources