Discussion of Ronald T. Kozlowski and Stuart B. Mathewson\u27s Measuring and Managing Catastrophe Risk

Mr. Kozlowski and Mr. Mathewson\u27s paper provides a good introduction to the development and use of models in the property insurance industry. It will be a valuable addition to the regrettably sparse actuarialliterature in this area. This discussion will offer several comments on the ideas raised in the paper, focusing on how models can be used to enhance an actuary\u27s work. The use of models has sparked major controversies between regulators and insurers in several jurisdictions, notably Florida. Controversy is not limited to the regulatory arena, however. Because models are being used by reinsurers to rate contracts and by A.M. Best to rate companies, management often must react to the application of modeling to the company. Many insurance company executives find themselves arguing with regulators for higher primary rate levels based on models but chafing under reinsurance costs developed using the same models