Karen Clark & Company

About Us

Karen Clark & Company helps senior executives and boards of directors make sure their companies have in place effective risk management processes that conform to best practices. All aspects of the process, from preparing the exposure data, to generating model output, to interpreting and using the catastrophe model results are reviewed and evaluated using independent benchmarks. Additionally, Karen Clark & Company provides unique executive briefings to inform senior management and company boards on the specific information they need to know about catastrophe risk, catastrophe models, and using model results to manage the risk.

Karen Clark & Company was formed by Karen Clark, internationally recognized expert in the field of catastrophe risk assessment and management. Ms. Clark has been helping major corporations estimate and manage potential losses from catastrophes since 1983. She developed the first hurricane catastrophe model and in 1987 founded the first catastrophe modeling company, Applied Insurance Research (AIR), which subsequently became AIR Worldwide Corporation after acquisition by Insurance Services Office in 2002.

Ms. Clark has spent over 20 years working closely with meteorologists, seismologists, engineers, statisticians and other experts to develop, expand and enhance the most scientifically advanced catastrophe models. She has developed processes to validate catastrophe models for all types of natural hazards in 50 countries. She has led the development of the models and the software applications that are used globally as standard tools for catastrophe risk assessment and management.

According to Ms. Clark, "while the catastrophe models and software applications will continue to evolve and improve over time, the bigger challenges now are in helping companies get full value from these tools. This requires a few additional steps in the risk assessment and management process."

Catastrophe Risk

Every part of the U.S. is exposed to catastrophe risk from one or more natural hazards such as earthquakes, hurricanes, tornadoes and other types of windstorms. Every geographic area could be the location of a man-made catastrophe such as a terrorist attack.

While it's virtually impossible to predict when or where the next catastrophe will occur, companies with exposure to loss need to be prepared for the types of events that could occur. They need to know the full range of possible future loss scenarios. They need tools to assess and manage their catastrophe risk.

Catastrophe Models

Many companies rely on catastrophe models to assess and manage catastrophe risk. Catastrophe models are very detailed and complex and they incorporate the science underlying the occurrences of catastrophes and the engineering knowledge to estimate the damage caused by catastrophic events. The models use statistical techniques to generate large samples of hypothetical future events. For each of these events, the models simulate the intensities by location and then estimate the damage to the exposed properties at each affected location.

Hundreds of scientists and engineers have worked on these models over the past 20 years, and the catastrophe models have become the standard tools for assessing catastrophe loss potential from all types of hazards for most parts of the world. While the models are the most sophisticated tools currently available to assess risk, the models do have certain limitations.

The models are based on many assumptions and each assumption has not one 'correct' value, but rather a range of scientifically valid values. The scientists and engineers who work on the different models make different scientific judgments at different points in time about how to implement these assumptions. This means there is quite a bit of variability and uncertainty inherent in the models and hence the model loss estimates. Catastrophe models do not produce deterministic answers, but rather ranges of possible outcomes along with estimated probabilities of those outcomes. The simulated outcomes along with their estimated probabilities will naturally differ between the different models.

The catastrophe models have another important requirement, which is detailed data about the exposure at each location that could be affected by a catastrophe. For residential and commercial properties, this includes the replacement value, construction type, occupancy and other building specific details. Without this information or if this information is inaccurate, the models will not provide reliable results.

Finally, the currently available catastrophe models do not incorporate all sources of loss caused by catastrophes. This was demonstrated clearly by the significant events of the past few years.

All of this doesn't mean the models should not be used. The models are still the best and most sophisticated tools for catastrophe risk assessment. It just means the models need to be used with the limitations clearly in mind. The models are just one part of the risk assessment and management process, and they need to be supplemented and validated using independent information and benchmarks.

Using Model Output to Manage Catastrophe Risk

The catastrophe model output is the estimated loss distribution frequently called the exceedence probability (EP) curve. The exceedence probability curve provides estimates of the probabilities of various levels of loss being exceeded. These curves can be generated by peril, by geographical region and all the way down to the individual location level. Because the models produce so much detailed output, these numbers can easily be misinterpreted and misused.

Many model users focus on point estimates such as PMLs and long return period losses. These numbers are subject to a high degree of uncertainty and each point on the curve has uncertainty around the loss and the probability.

The uncertainty around the EP curve increases with the size of the loss and as the probability of loss decreases.

Additionally, the higher the resolution of the model output, the more the variability and uncertainty around the output. This means extra caution should be applied before using the high resolution numbers taken directly from the models. If the uncertainty in model output is not taken into account, your decisions and business strategies will be subject to instability as the models are updated and improved.

News and Press Releases

Karen Clark Honored with Award for Nobel Peace Prize

BOSTON, May 21, 2008—Karen Clark & Company announced today that Karen Clark, President and CEO, has been honored with an award certificate for the 2007 Nobel Peace Prize bestowed on the Intergovernmental Panel on Climate Change (IPCC). According to the accompanying letter from R. K. Pachauri, IPCC Chairman, "We are providing a copy of this award only to those who have contributed substantially to the work of the IPCC over the years since the inception of the organization."

Karen Clark first contributed to the work of the IPCC as a co-lead author for the Second Assessment Report published in 1995. Since that time, she has sponsored and supported scientific research on climate change and its potential impacts with respect to severe weather events. "It's a great honor to be associated with the IPCC, the 2007 co-recipient of the Nobel Peace Prize, and to be recognized as a valuable contributor to such an important body of scientific work," said Ms. Clark. "Climate change is clearly one of the most critical issues of our time and an area of vital ongoing scientific investigation," continued Ms. Clark.

On December 10, 2007 the Intergovernmental Panel on Climate Change and Albert Arnold (Al) Gore Jr. were awarded the Nobel Peace Prize "for their efforts to build up and disseminate greater knowledge about man-made climate change, and to lay the foundations for the measures that are needed to counteract such change." In his acceptance speech, Mr. Pachauri stated "The IPCC produces key scientific material that is of the highest relevance to policymaking, and is agreed word-by-word by all governments, from the most skeptical to the most confident. This difficult process is made possible by the tremendous strength of the underlying scientific and technical material included in the IPCC reports."

About Karen Clark & Company

Karen Clark & Company was formed by Karen Clark, internationally recognized expert in the field of catastrophe risk assessment and management. Ms. Clark developed the first hurricane catastrophe model and in 1987 founded the first catastrophe modeling company, Applied Insurance Research (AIR) which subsequently became AIR Worldwide Corporation after acquisition by Insurance Services Office in 2002. She has spent over 20 years working closely with meteorologists, seismologists, engineers and other experts to develop the most scientifically advanced catastrophe models, and she has developed processes to validate catastrophe models for all types of natural hazards in 50 countries. Ms. Clark has led the development of software applications that are used globally as standard tools for catastrophe risk assessment and management. She formed Karen Clark & Company to help client companies derive full value from the risk assessment tools. For more information, please visit www.karenclarkandco.com.

Karen Clark Addresses Northeast Hurricane Mitigation Leadership Forum

Karen Clark to address the Northeast Hurricane Mitigation Leadership Forum in Newport, RI, on July 10-11, 2008. An invitation-only event bringing together academics, scientists, public and private sector representatives, it is focussed on advancing hurricane risk mitigation efforts and awareness in the Northeast. Ms. Clark will speak on what can happen when a Major Hurricane Strikes New England: How Large Will the Impact Be?

Karen Clark Addresses NAMIC Regional Meeting

Karen Clark will speak on Northeastern hurricane risk at the National Association of Mutual Insurance Companies Regional Meeting on June 2, 2008, in Andover, MA.

Karen Clark Addresses AIA Law & Regulations Committee

Karen Clark will be the luncheon speaker for the American Insurance Association Law & Regulations Committee meeting on May 7, 2008, in Washington, DC. Please visit AIA to learn more.

Karen Clark to Speak on Global Warming at European Insurance Forum in Dublin

At the European Insurance Forum in Dublin, April 7-8, 2008, Karen Clark, along with other internationally recognized experts, will address the impact of Global Warming on Catastrophes and the ability of models to address the issue. Ms. Clark will also participate in the Interactive Discussion Forum on 'Future Shock' later the same day. Please visit theeuropeaninsuranceforum2008 to learn more about the Forum.

Karen Clark to Moderate Panel at World Insurance Forum in Dubai

Karen Clark will moderate a panel of internationally recognized experts on Assessing the Magnitude of Natural Perils Catastrophes at the World Insurance Forum in Dubai, March 17-20, 2008. The experts — Dr. Nicolas Coch from the U.S, Dr. Xudong Liang from China, and Dr. Charles Scawthorn from Japan — will discuss flood, drought, fire, earthquake, hurricanes and change in economies due to climate change. Please visit www.worldinsuranceforum.com to learn more about the Forum.

New Executive Briefing on Northeast Hurricane Risk

Boston, February 25, 2008—Karen Clark & Company announced today a new Executive Briefing on Northeast Hurricane Risk. This briefing provides insurance company senior executives and boards of directors with important information in five key areas: the likelihood of future major events, the nature of the hurricane damage, why the catastrophe models differ so significantly in this region, how the model results can be benchmarked for credibility, and current competitive threats and opportunities in the Northeast.

"Insurance companies have been relying too heavily, and in some cases exclusively, on the catastrophe model output to make important financial decisions", said Karen Clark, President and CEO of Karen Clark & Company. "This is despite the fact that Hurricane Katrina and other recent events clearly highlighted the inaccuracies and uncertainties inherent in the catastrophe models. In the Northeast region, the results of different hurricane models can differ by more than a factor of two giving the clear signal that companies need to look beyond the models to understand and manage their hurricane risk", continued Ms. Clark.

This Executive Briefing provides clear and succinct information on what is known about hurricanes in the Northeast. It explains how that information gets incorporated into the catastrophe models and why the model results can differ so widely. The briefing also shows how other independent information can be used to benchmark the model results and provide more transparency with respect to a company's likely losses from future hurricane events.

"Company executives have been asking me for more insight into the hurricane risk in this region because of the dramatic model changes and market swings in recent years", said Ms. Clark. "This Executive Briefing packages the most important information into a concise format appropriate for senior executives and boards of directors."

Since hurricane Katrina, some of the catastrophe model changes have resulted in loss estimates increasing by up to 100 percent or more in Northeastern coastal areas. As a result, reinsurance costs have risen dramatically for all coastal areas, including Connecticut, Rhode Island and Southeastern Massachusetts—areas that have not been affected by a major hurricane in over 50 years. This has led some insurers to increase premiums dramatically for policyholders in these areas and many insurers to stop writing business in coastal areas.

Insurance company executives, policyholders and regulators all want answers to the root causes behind how and why this market disruption occurred. This Executive Briefing addresses the specific issues insurance company executives and boards need to know in order to adapt their strategies effectively to the current market situation.

Karen Clark is a globally recognized authority on hurricane risk, hurricane models, and using scientific information to assess and manage catastrophe loss potential. Over the past few years, she has given dozens of presentations to industry organizations, investor groups and boards of directors. Ms. Clark was recently featured in a History Channel special on Northeast Hurricanes.

The Executive Briefing on Northeast Hurricane Risk can be scheduled at convenient times and locations. To request information please e-mail info@karenclarkandco.com.

Karen Clark to Speak at Hurricane Risk Mitigation Leadership Forum

Karen Clark will present "Sorting through the Noise: Statistics of the Hurricane Hazard" at the Hurricane Risk Mitigation Leadership Forum to be held in Orlando, Florida, February 21-22, 2008. Ms. Clark will discuss historical and current hurricane risk and look into the future to understand its financial consequences. The Leadership Forum aims to explore initiatives in the areas of building mitigation, hazard mitigation, and risk financing, and foster communication and cooperation between academic, scientific, and public and private sector representatives. Please visit www.mitigationleadership.com to learn more about the Forum.

Glen Daraskevich Joins Karen Clark & Company As Senior Vice President

Boston, December 3, 2007—Karen Clark & Company announced today Glen Daraskevich has joined as Senior Vice President to head up the consulting group responsible for the IMARC™ comprehensive review process. The recently launched IMARC reviews help companies ensure they have in place holistic risk management processes that comply with best practices. Holistic risk management practices incorporate independent benchmarks and metrics to assess the quality of catastrophe model input and output.

"Mr. Daraskevich is the ideal candidate to lead this new industry initiative that is transforming and significantly improving how companies assess and manage catastrophe risk," said Karen Clark, CEO of Karen Clark & Company. "This important role requires a unique individual with specific skills, professional experience and educational background, and Glen fits the bill perfectly."

Mr. Daraskevich spent the last six years at AIR Worldwide where he rose from Senior Consultant in the Consulting Services group to Vice President of the Research and Modeling team encompassing over 40 scientists and engineers, including 28 Ph.D.s. Along with managing the development efforts for all catastrophe models, he was actively involved in the development of the U.S. Wildfire model. Mr. Daraskevich led several post disaster damage surveys for the hurricanes of 2004 and 2005, including Katrina. Prior to joining AIR, Mr. Daraskevich held various positions designing, reviewing and auditing information systems and processes. He earned a B.S. degree in Civil Engineering and Master's degrees in Engineering and Information Systems.

"I am very excited about my new role at Karen Clark & Company", said Mr. Daraskevich. "It isn't often one has the opportunity to start a new entity with an industry leader and visionary, and while the mission is challenging to be sure, I'm looking forward to working with the companies who are ready to advance to the next level of effective catastrophe risk management."

About Karen Clark & Company

Karen Clark on Climate Change Panel at CPCU Society Meeting

BOSTON, November 10, 2007— Karen Clark will be part of the Panel on Climate Change: The Risk & Implications of Global Warming – What You Need to Know" at the CPCU Boston Chapter Meeting being held at the World Trade Center Boston. The seminar will be from 9:00 to 11:30 on Friday, November 16, 2007. More on CPCU ...

Karen Clark & Company Launches Independent Reviews of Catastrophe Risk Management Processes

BOSTON, November 5, 2007—Karen Clark & Company announced today it is providing comprehensive reviews of company internal catastrophe risk assessment and management processes. The independent reviews are designed to help companies ensure they have in place holistic risk management processes that comply with best practices. Holistic risk management practices incorporate independent benchmarks and metrics to assess the quality of catastrophe model input and output.

Karen Clark & Company independent reviews cover the five most important components of an effective risk management process—preparing the exposure data, benchmarking the exposure data, performing the model analyses, benchmarking the model-generated loss estimates, and applying the model results. The comprehensive independent review, called IMARC™, Independent Metrics for the Assessment of Risk from Catastrophes, provides company management with an assessment of each component of their internal process along with recommendations for improvements.

"In meetings with dozens of companies over the past several months, I found incredible demand for a recognized, independent review process. Even companies that have already developed extensive internal processes want a team of independent experts to review those processes," said Karen Clark, CEO of Karen Clark & Company. "The IMARC reviews also provide a way for external stakeholders such as rating agencies and investors to better differentiate companies based on the relative quality of their risk management processes and their exposure data."

Karen Clark on Climate Change Panel at PCI Annual Meeting

BOSTON, October 29, 2007— Karen Clark will be part of the Panel on Climate Change: Operational Challenges and Political Fallout at the Property Casualty Insurers Association of America Annual Meeting in Boston. The panel session will be from 9:15 to 10:30 on Wednesday, October 31, 2007. More on PCI ...

Karen Clark Presented with Lifetime Achievement Award

BOSTON, September 6, 2007—AIR Worldwide and Karen Clark & Company today announced that Karen Clark, vice chair of AIR Worldwide, has been awarded The Review Worldwide Reinsurance Awards' Lifetime Achievement award. The prestigious award recognizes an individual who has made the most outstanding long-term contribution to the re/insurance industry.

The Worldwide Reinsurance Awards judging panel, which is made up of CEOs and senior executives from within the industry, selected Ms. Clark after reviewing nominations from around the world. The award was presented to Karen Clark at a ceremony on Wednesday, 5th September held at The Dorchester Park Lane Hotel in London. The judges referred to Ms. Clark as, "the founder of modern day modeling" who "put modeling on the map."

As the founder of AIR Worldwide, Karen Clark is an internationally recognized expert in the field of catastrophe risk modeling. In 1987, Ms. Clark pioneered the probabilistic catastrophe modeling techniques that revolutionized the way insurers, reinsurers and financial institutions manage their catastrophe risk. In addition, she has led the development of innovative technologies that enable companies to identify, quantify and plan for the financial consequences of catastrophic events. In 2000, she was selected by Business Insurance as one of the "Top 100 Women in the Insurance Industry." In 2001, Ms. Clark was honored as "Woman of the Year" by the Association of Professional Insurance Women (APIW) and in 2006, she was selected by Business Insurance as a "Woman to Watch."

"Receiving the Lifetime Achievement Award is a great honor for me," Ms. Clark said. "And while it was extremely challenging to create and develop the catastrophe modeling discipline, this award also speaks to the industry's ability to embrace new, highly sophisticated technology for complex insurance decisions. I'm now looking forward to working with companies to take the industry to the next level with respect to catastrophe risk management."

In August 2007, Ms. Clark launched a new independent firm—Karen Clark & Company—to help companies better use catastrophe models as sophisticated tools for making important risk management decisions.

"Karen Clark created an industry when she founded AIR, with a vision to change the way companies assess and manage their catastrophe risk," said S. Ming Lee, president and CEO of AIR Worldwide. "This award is a well deserved recognition of her remarkable achievements over the past twenty years, and the impact she has had on the industry."

About AIR Worldwide Corporation

AIR Worldwide Corporation (AIR) is the scientific leader in the catastrophe risk management industry, providing innovative risk modeling software and consulting services. AIR founded the catastrophe modeling industry in 1987 and today models the risk from natural catastrophes and terrorism in more than 50 countries. More than 400 insurance, reinsurance, financial, corporate and government clients rely on AIR software and services for catastrophe risk management, insurance-linked securitization, site-specific seismic engineering analysis, and property replacement cost valuation. AIR is a member of the ISO family of companies and is headquartered in Boston with additional offices in North America, Europe and Asia. For more information, please visit www.air-worldwide.com.

About Karen Clark & Company

Catastrophe Modeling Expert Karen Clark Launches Independent Firm to Help Companies Better Utilize Risk Assessment Tools

Boston, August 13, 2007—Karen Clark today announced the formation of a new independent firm—Karen Clark & Company—to help companies better use catastrophe models as sophisticated tools for making important risk management decisions. In her new company, Ms. Clark will be working closely with senior executives and boards of directors to make sure their companies have in place effective risk management processes that conform to best practices. Karen Clark & Company will offer consulting services, independent reviews of company internal processes, and executive briefings to provide senior management and their boards with specific information they need to know about catastrophe risk, catastrophe models, and using model results to manage the risk.

"While the catastrophe models and applications will continue to evolve and improve over time, the bigger challenges now are in helping companies get full value from these tools" said Ms. Clark, president and CEO of Karen Clark & Company. "Senior executives and directors of companies exposed to catastrophes realize they need independent information about catastrophe risk and best practices for managing that risk because every year the financial exposure to catastrophe loss increases. Companies have asked me for more insight so I am very excited to be taking on these new challenges and working with industry leaders to develop more effective and holistic risk management processes."

In 1987, Ms. Clark founded the catastrophe modeling industry after identifying a need for probabilistic modeling techniques and better catastrophe risk assessment tools for the insurance industry. This important discovery led to the development of several innovative technologies that are now industry standard systems for insurance pricing, underwriting, and risk transfer decision-making. That same year she founded AIR, the premier catastrophe modeling firm which today serves more than 400 client companies worldwide.

"It's become clear the industry needs an independent company with the expertise to inform CEOs and their boards on what they need to know about catastrophe risk and catastrophe models and to help them ensure the integrity of their internal risk assessment and management processes," continued Clark. "As rating agencies, regulators and other stakeholders take an increasingly active interest in how companies are assessing and managing risk, independent information and reviews of those processes are becoming much more important."

About Karen Clark & Company