Catastrophe models are used by the insurance industry to underwrite low frequency / large consequences risks. The underlying structure of loss correlation of natural catastrophes makes traditional actuarial methods for pricing and capital allocation ineffective. Catastrophe models are built around a hazard module that explicitly solves the primary correlation structure of the events.

The presentation explores the basic analytical framework in which catastrophe models are designed and illustrates the effect of the inherent hazard correlation structure on the estimation of aggregate loss.
Finally few conclusive remarks are made on the importance that catastrophe models may have in implementing new ways to finance natural risk in developing countries.