Catastrophic Event Modeling in the Gulf of MexicoI. Insurance Markets and Risk Techniques

Modeling offshore energy risk presents a special set of design challenges. Actuarial techniques cannot be applied due to the relative infrequency of events and scarcity of historical loss data. Each hurricane is unique, and the response of platforms, pipelines, and rigs in the path of each storm is also unique. To model the low frequency/high severity risk associated with catastrophic events, it is necessary to develop physical models of the event and the manner in which the event creates vulnerability and interacts with infrastructure. The purpose of this two-part paper is to review the goals of catastrophic event modeling and its application to the offshore energy industry, and to quantify the expected losses to property damage in the Gulf of Mexico based on historical storm events. In Part 1, we review the evolution of offshore energy insurance markets and the conceptual stages of model development.