Adjusting Portfolio Loss Estimates in Light of Update To the Earthquake Hazard Model in California

Abstract eng:
This study presents two heuristic approaches to adjust the California earthquake occurrence rates in the commercial catastrophe models based on the new Uniform California Earthquake Rupture Forecast (UCERF3) time-dependent model. The UCERF3 model was developed by the 2014 Working Group on California Earthquake Probabilities and incorporates updated earthquake catalogs, new smoothed seismicity algorithms and inputs, combined fault and geodetic based slip-rate models, and more comprehensive earthquake rupture models. The time-dependent (TD) rates in UCERF3 reveal significant model changes compared to the previous forecast (UCERF2) upon which the current catastrophe earthquake loss models for the United States are developed. Changes partly originate from the inclusion of multifault ruptures, where earthquakes are no longer confined to separate, individual faults, but rather can occasionally rupture multiple faults simultaneously. The impact of model changes in terms of earthquake rates –including multifault rupture effects– on the projected short-term and long-term modeled losses for selected portfolios in the United States are estimated in this study. Two rate adjustment approaches are examined: (1) uniform application of the averaged earthquake rate changes over all groups of faults in different regions of California; and (2) application of fault-by-fault rate adjustment for each event within the catastrophe models’ stochastic event sets. The results from two approaches are compared by performing a set of sensitivity tests on portfolio level loss estimates. The second approach directly employs the multifault rupture effects and is shown to be more reliable to estimate the projected loss changes.

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