Realistic Disaster Scenarios
Careful management of catastrophe risk is a business imperative at Lloyd’s. Past experience shows that the market needs to be able to withstand multiple catastrophe events in any given year.
Lloyd’s maintains a set of mandatory Realistic Disaster Scenarios (RDS) to stress test both individual syndicates and the market as a whole. The event scenarios are regularly reviewed to ensure they represent material catastrophe risks.
There are three sets of Realistic Disaster Scenarios. First are the compulsory scenarios, for which all syndicates report estimated losses to Lloyd’s; these represent events to which most of the market would potentially be exposed, and for which Lloyd's monitors the total of all syndicate losses. There is a set of more specialist scenarios, which need only be reported if estimated losses exceed a threshold. Finally, there are two events which syndicates must define for themselves as representing material potential losses not captured in other scenarios.