CLAS. CATASTROPHE LOSS ANALYSIS SERVICE for Corporate Risk Management. Identify the Hazard. Quantify Your Exposure. Manage Your Risk.

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1 CLAS CATASTROPHE LOSS ANALYSIS SERVICE for Cororate Risk Management Identify the Hazard. Quantify Your Exosure. Manage Your Risk.

2 Identify the Hazard What erils kee you u at night? Earthquakes. Hurricanes. Tornados. Hailstorms. Terrorism. There s a lot to think about, and the list is growing. Evaluating your roerty and workers comensation exosure to these extreme events, individually and collectively, is a comlex rocess. That is why you should enlist the hel of AIR. Our Catastrohe Loss Analysis Service (CLAS) uses the most scientifically advanced modeling technology to quantify your exosure so that you can make otimal insurance buying, alternative risk transfer and mitigation decisions. If you are not using risk modeling to evaluate your comany s otential for loss, you may not know your true vulnerability until it is too late. What location characteristics increase your loss otential? AIR s modeling of your loss otential incororates an assessment of your locations geograhical and geological characteristics that can increase or reduce your loss from an extreme event. The difference between no damage and total loss from an earthquake can deend on your distance to the active fault and the tye of soil surrounding your buildings. For hurricanes your roximity to the coastline, elevation, and surrounding terrain could mean the difference between 70 or 130 mh winds. The models used in a CLAS analysis draw uon AIR s comrehensive, detailed hazard databases to identify and incororate these critical location characteristics in the assessment and the quantification of your otential losses. AIR s Catastrohe Loss Analysis Service (CLAS ) CLAS uts the ower of AIR s remier catastrohe modeling technology to work for cororate risk managers. AIR consultants aly robabilistic modeling techniques to estimate the magnitude of otential losses that you can exerience from extreme events. CLAS can answer your most ressing questions: What are my comany s otential catastrohe losses? How much insurance coverage do I need? How large a deductible should I assume? How does the concentration of your locations affect your exosure to loss? The answer deends on many factors. Hurricanes can make landfall in Florida and travel u the entire Eastern Seaboard. A major ruture of one earthquake fault can trigger activity along other faults and damage buildings searated by hundreds of miles. With AIR s advanced comuter modeling, thousands of unique scenarios are simulated to identify those events that could cause your comany major catastrohic losses because of your asset concentration. CLAS Large Loss Scenarios rovide details regarding otential future events that can cause your most severe losses, as well as information on each location s contribution to the loss. With this detailed information you can identify those locations where risk mitigation efforts will be most cost effective and otimally allocate insurance costs to roerties or business units. Event Characteristics Landfall Latitude: Radius of Maximum Winds: mi Angle at Landfall: Landfall Longitude: Forward Seed: mh Saffir-Simson Scale: 5 Location Secific Loss Summary Address City State ZIP Code Loss (USD) % of Total Loss 500 North Blvd Pomano Beach FL ,413, Buffalo Rd Titusville FL , Lafayette St Fort Meyers FL N Keller Rd Orlando FL Total 1,427,

3 Quantify your exosure How much can you lose? Don t know? AIR s CLAS analysis uses modeling technology to simulate thousands of scenarios to estimate the full range of ossible losses that you can exerience. Analysis results are rovided in terms of an EP curve and its related Probabilistic Loss Distribution (see sidebar). This will give you a comrehensive and informed ersective on your situation. What is the likelihood of loss? The outut of a CLAS analysis rovides much more useful information than a traditional Probable Maximum Loss (PML) study. A PML might rovide some understanding of the amount of your otential loss, but if it doesn t tell you the likelihood of that loss occurring, how valuable is it? You need to know the likelihood of otential losses in order to know if it is worth sending the money to insure against them. A CLAS analysis reorts a range of otential losses and the corresonding robability that each level of loss will occur. What if the modeling outut indicates that you are under-insured? (Or over-insured?) Then you deserve congratulations and erhas a raise! By incororating AIR risk modeling into your analysis you may identify a coverage shortfall (or excess) that you can roactively rectify. Your forward thinking could save your comany from a loss of extreme roortions (or save you from sending money for coverage you don t need) and could save you from an unleasant conversation with your CFO. How do you identify the riskiest locations and allocate insurance costs within your comany? A CLAS analysis quantifies each location s contribution to your overall risk rofile. Now you can assign insurance costs to different regions, divisions, or facilities more efficiently. Being able to identify the riskiest locations and to quantify their loss otential is also the first ste toward more focused, cost-effective risk mitigation. Are you reared for simultaneous catastrohic roerty, workers comensation, and life losses? When catastrohic events occur, your comany s emloyees and buildings can both suffer. If you don t account for the magnitude of those losses across insurance lines, you could be leaving your comany exosed to debilitating losses. A CLAS analysis hels you assess the aggregate loss otential for roerty, workers comensation, and life ortfolios. An Exceedence Probability (EP) is the likelihood that your losses will equal or exceed a certain dollar amount in the next year. The EP curve below is a grahical reresentation of otential losses to a roerty ortfolio. In this examle, there is aroximately a 4% chance that this ortfolio will suffer a loss of $50 million or more due to extreme events next year. Exceedance Probability 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% A Probabilistic Loss Distribution is another way of exressing the EP curve. The table is sorted by frequency of occurrence, or return eriod. The return eriod is the recirocal of the exceedance robability. Return Period Loss Amount ($ millions) Exceedance Probability Loss ($000 s) 10 Years 10% 37, Years 5% 49,470 Loss Amount ($ millions) Estimated Return Period 50 Years 2% 78, Years 1% 121, Years 0.4% 197, Years 0.2% 275, Years 0.1% 346,546 Avg. Annual Loss 12,022

4 Manage Your Risk How much insurance should you buy? A CLAS analysis lets you comare different insurance rograms to identify the one that rovides the right rotection for your comany. AIR analysts can model the different coverage amounts you select, then hel you and your insurance broker or risk consultant determine the otimal solution commensurate with your comany s risk tolerance level. What size deductible is most cost effective? Different deductibles can be evaluated as art of the CLAS analysis as well. Outut from the analysis includes estimates of your net loss, which includes your deductibles and amounts in excess of insurance limits and sub-limits. Can you save lives and money through a building retrofit or some other mitigation measure? Survivability is your first riority. Your buildings need to maintain their structural integrity if your emloyees are to avoid serious harm from an earthquake or terrorist attack, and if your comany is to avoid extreme workers comensation, life and business interrution losses. A CLAS analysis can assess the otential for injuries, fatalities, and downtime sustained from these events. Then AIR s in-house engineers can work with you to identify the most cost effective way to reduce the robability of those losses occurring. How will risk modeling hel lower your remiums? At the conclusion of a CLAS analysis you will have a better understanding of your comany s risk rofile and otential losses. The analysis rovides the tools you need to customize your insurance coverage. When you buy only the insurance you need, allocate costs otimally, and erform cost effective risk mitigation, you save money. Underwriters factor in a measure of uncertainty (a risk load) when they rice your risk. The greater the uncertainty the larger the risk load. In other words, what you and they don t know can cost you money. By including your AIR CLAS analysis with your insurance alication or submission, you reduce the underwriter s uncertainty and ensure that you and your underwriter have an equal understanding of your loss otential. What Program is Right For You? Every comany s risk tolerance level is different. A conservative comany may be willing to ay for $100 million in coverage, while a comany with a greater tolerance for risk might choose a lower coverage limit in exchange for lower insurance costs. Multile combinations of coverage and deductible scenarios can be modeled to determine the risk transfer rogram that works best for you. Probability of Exceeding Loss Return Period Loss with No Insurance (USD) Loss with $50 mil Limit Loss with $100 mil Limit 5% 20 years 6,772, , ,305 2% 50 years 13,898, , ,395 1% 100 years 22,119, , , % 250 years 43,074,873 4,087, , % 500 years 75,183,220 25,184, , % 1000 years 86,915,071 36,929, ,916 Avg. Annual Loss 1,431, ,826 34,724

5 AIR Solutions for Cororate Risk Management AIRProfiler CLASIC/2i AIRWeather Data AIRWeather ClimateCast CLAS (Catastrohe Loss Analysis Service) Identify the Hazard Process Quantify Your Exosure Manage Your Risk Earthquake Hurricane Peril Tornado, Hail, Straight-line Wind Flood Weather Terrorism Proerty Line of Business Product or Service Workers Comensation Life Internet-based * Consulting Service *Also available as a deskto software alication. About AIR Worldwide Cororation AIR Worldwide Cororation (AIR) is the world s remier risk modeling and technology firm secializing in risks associated with natural and man-made catastrohes, weather and climate. Through its web-based and deskto software solutions and consulting services, AIR assists cororations interested in assessing their exosure to loss and otimizing risk transfer and mitigation strategies. AIR has develoed models covering all major natural hazards, including hurricanes and earthquakes, for more than 40 countries. AIR also models man-made erils. In the wake of the tragic events of Setember 11, 2001, AIR develoed and introduced the first fully robabilistic terrorism model caable of quantifying the risk from this emerging threat. AIR is headquartered in Boston and has additional offices in North America, Euroe and Asia. AIR is a wholly owned subsidiary of Jersey City-based Insurance Services Office, Inc. (ISO). For more information, lease visit the AIR website at

6 AIR Worldwide Cororation Headquarters 101 Huntington Avenue Boston, MA Tel: AIR Worldwide Cororation 425 Market Street Suite 2200 San Francisco, CA Tel: AIR Information Technology Pvt. Ltd Dana Chambers Masab Tank, Hyderabad, India Tel: Alied Insurance Research Ltd. 3 St. Helen s Place London EC3A 6AB, UK Tel: ISO Cororate Headquarters 545 Washington Boulevard Jersey City, NJ AIR Worldwide Cororation is a wholly owned subsidiary of ISO AIR Worldwide Cororation