EQECAT to Develop Catastrophe Modeling Scenarios for the National Council On Compensation Insurance.

Business Editors

OAKLAND, Calif.--(BUSINESS WIRE)--June 19, 2002

EQECAT Inc., an ABS Consulting company, has been selected by the National Council On Compensation Insurance (NCCI) to provide the modeling of workers' compensation catastrophe losses. The selection of EQECAT was announced at the NCCI Annual Issues Symposium, held in Orlando, Fla. NCCI is the leading workers' compensation advisory organization in the nation, serving some 38 states and more than 700 member insurance companies.

"We believe that in the post 9/11 era, we must re-evaluate all major sources of catastrophe exposure," said Barry Lipton, NCCI senior actuary. "We selected EQECAT for this important project because of their proven catastrophe modeling capabilities, and their success in supporting CAT Bonds and rate filings. EQECAT was also willing to integrate NCCI state specific loss data into the model to provide the refined analysis we need to serve our members."

EQECAT has advanced state-of-the-art workers' compensation modeling by:

-- Revising earthquake-related death and injury rates by structure and
occupancy types based on a detailed analysis of Kobe, Turkey and Taiwan injury
and death data.

-- Incorporating NCCI and other loss data by state and injury type to enhance
the accuracy of calculating insured losses.

-- Using currently available, improved employment and building stock data to
enable credible analysis results by SIC and zip code, even when detailed policy
data is unavailable.

EQECAT's analysis of detailed claims data from the Kobe, Turkey and Taiwan catastrophic earthquakes revealed that previous industry studies may have greatly underestimated the workers' compensation loss potential, in some cases by as much as an order of magnitude.

"We did a thorough analysis of building damage, death and injury rates for several structure types using detailed Kobe, Turkey and Taiwan data," said Dr. Mahmoud Khater, EQECAT's chief science and technology officer. "The Kobe and Turkey events were particularly relevant for this type of analysis because the earthquakes affected populous regions. Also, the affected buildings in Kobe and Turkey are similar to many in regions of the U.S. The analysis results were surprising in that the previous estimates from older models were very low compared to our Kobe and Turkey findings. The next challenge was to accurately convert the enhanced injury occurrence rates into financial consequences.

"In order for our modeling to be meaningful for NCCI, this process has to be sensitive to the variations in payment amounts in each state," said Dr. Khater. "There is a surprising variation in the claim value for each injury class for each state, which cannot be overlooked. NCCI and other claims data are very useful in improving the reliability of this crucial phase of the modeling process."

Lastly, workers' compensation analyses are often challenging because of the lack of detailed exposure information available regarding the number and location of covered employees, the types of structures involved and other such data useful for modeling loss potential. EQECAT solves this problem by using a combination of proprietary and public databases that enable reasonable and intelligent assumptions to be made about the age and types of structures within each zip code/census block and the number of employees by SIC Code within each zip code.

"Even when only imperfect data is available, we are able to provide credible loss estimates by using these underlying databases to develop reasonable default assumptions," said Dr. Khater. He also indicated that, "Because of the highly nonlinear stochastic nature of the workers' compensation problem, a full detailed probabilistic analysis is essential to estimate the losses."

The same advanced modeling methodology used for the NCCI project can be used to develop loss distributions for PML analyses for both Primary Insurers and Reinsurers wishing to quantify and manage their workers' compensation catastrophe exposure. EQECAT is looking at incorporating the workers' compensation model into its WORLDCATenterprise(TM) catastrophe management software product as well. Persons interested in more information about EQECAT workers' compensation analyses or models can call Robert Healy at 510/817-3101 or e-mail requests to [e-mail].

NCCI, a shared-services organization serving the workers' compensation industry, offers a comprehensive array of products and services that enable insurers and other stakeholders to access and use workers' compensation data to establish accurate loss costs, calculate experience rating modifications, manage residual market mechanisms and reduce overall costs. NCCI's services support informed decision-making and the efficient economic functioning of the workers' compensation system, thereby helping to promote the vitality of the American economy and the health and safety of American workers.

EQECAT Inc., an ABS Consulting company, is a leading provider of global catastrophe management software and services specifically focused on the Property and Casualty Insurance Industry.

ABSG Consulting Inc., marketing under ABS Consulting (www.absconsulting.com), provides rational engineering-based solutions that blend state-of-the-art technology with practical loss-control measures and innovative risk-transfer options. Headquartered in Houston, Texas, ABS Consulting is an affiliate of ABS, one of the world's largest providers of classification services to the international marine and offshore industries.