Catastrophe modeling software
Software · Cloudbreak team · Updated October 29, 2026 · 6 sources
Definition
Catastrophe modeling software simulates thousands of plausible disaster events, estimates the damage each would do to a portfolio of properties, and applies policy terms such as deductibles and limits to calculate insured loss.
How it works
A catastrophe model does not rely on past losses alone, which are too few for rare events. It builds a large set of simulated events, works out how strong each one would be at each property, and how much damage that would do to that kind of building. Models usually have four parts:
- Hazard: a catalog of simulated events, each with a strength, size, location, path, annual probability (event rate) and a footprint of hazard intensity.
- Vulnerability: damage functions that turn local intensity, such as wind speed, into expected damage based on construction, occupancy and building height.
- Exposure: the user's portfolio, with each location, its risk characteristics, insured values, deductibles, limits and any reinsurance.
- Financial: applies deductibles, limits, attachment points and reinsurance to every event, then combines the results into a loss probability distribution.
The main outputs come from the resulting loss distribution. An exceedance probability (EP) curve ranks losses by their chance of being exceeded, for either all losses in a year (aggregate) or the largest event in a year (occurrence). Probable maximum losses at set return periods are read from the EP curve. Average annual loss (AAL) is the loss averaged across all years in the event set.
Models can also estimate indirect losses, such as business interruption, and demand surge, the jump in labor and material costs after a large event.
Catastrophe models have been in use since the 1980s, and the NAIC notes they now also cover non-weather risks such as terrorism and cyber attacks.1
Example
An August 31, 2022 University of Alabama study ran a hypothetical apartment building through a catastrophe model at 34 locations around the southeastern United States: 2 stories, 30,000 square feet, 30 units, masonry veneer, unbraced gable ends, and a total insured value of $3,375,000.2
| Wind zone | Built to code | FORTIFIED Roof | FORTIFIED Gold |
|---|---|---|---|
| Hurricane, over 140 mph | $15,980 | $14,447 | $9,431 |
| Hurricane, 115 to 140 mph | $6,511 | $5,511 | $4,146 |
| High wind, under 115 mph | $3,571 | $2,790 | $2,493 |
| High wind and hail, under 115 mph | $3,571 | $2,667 | $2,370 |
The study set wind premium at three times the modeled expected loss in hurricane zones (expected loss plus a risk load of twice the expected loss) and at twice the expected loss inland. By that rule, the $15,980 code-built premium in the over 140 mph zone reflects an expected annual wind loss of about $5,327 ($15,980 divided by 3), matching the study's loss table. Gold construction cut that zone's premium by $6,549, or 41%.2
Where you'll see it
- Pricing and reinsurance: insurers use modeled average annual loss in rates and mitigation credits, and probable maximum losses to decide how much reinsurance to buy.
- Property submissions: each location's construction, occupancy, height and insured values from the statement of values go into the model, so the quality of that data drives the result.
State rules
- Florida rate filings: in residential property rate filings, insurers must use hurricane models the Florida Commission on Hurricane Loss Projection Methodology finds accurate or reliable.3
- Louisiana mitigation discounts: the NAIC's Catastrophe Risk Management Center of Excellence ran representative Louisiana single-family homes through two hurricane models to build the benchmark discount table in Louisiana's Regulation 136. Insurers must apply the discounts to the hurricane portion of the premium by January 1, 2027; a FORTIFIED Roof earns 16% in the North zone, 27% in Central and 29% in South.4
Questions
- What are catastrophe models used for?
- Ratemaking, pricing mitigation credits, buying reinsurance, and assessing capital and solvency. They estimate direct damage, indirect loss such as business interruption, and demand surge.
- What is the difference between AAL and PML in a cat model?
- Average annual loss is the loss averaged across every simulated year. Probable maximum loss is the loss at a chosen return period, read from the exceedance probability curve.
- Which hurricane models are accepted in Florida?
- In June 2025 the Florida commission found six hurricane models acceptable under its 2023 standards: five from companies and one public model from Florida International University. Each accepted model's organization receives a letter of acceptability.5,6
Cloudbreak
Cloudbreak keeps every policy, statement of values and loss run in one place per property, tracks renewals, and watches every building against storms with its proprietary predictive storm engine, built with AI and backed by meteorologists.
Sources
Written by the Cloudbreak team. Numbers, dates and rules cite the published sources below.
- 1. National Association of Insurance Commissioners: Catastrophe Models (Property)
- 2. Alabama Center for Insurance Information and Research, University of Alabama: Estimating the Economic Value of FORTIFIED Multifamily Construction
- 3. The Florida Legislature, Online Sunshine: 627.0628 Florida Commission on Hurricane Loss Projection Methodology
- 4. Louisiana Department of Insurance: FORTIFIED Benchmarks
- 5. Florida Commission on Hurricane Loss Projection Methodology: June 11 to 13, 2025 Meeting Summary
- 6. Florida Commission on Hurricane Loss Projection Methodology: Model Acceptability