Lloyd's Realistic Disaster Scenarios (RDS)
A set of standardized catastrophe scenarios that Lloyd's requires its syndicates to quantify regularly, to measure and compare their exposures, including to cyber and war events.
A catastrophe model produces a loss distribution that is hard to compare between insurers, because each uses its own assumptions. Lloyd's therefore imposed a common language on its syndicates: a set of precise, market-defined scenarios, each of which must be priced for the gross and net loss it would cause. The scenarios cover the major natural perils, a hurricane hitting Florida or the US north-east, a European windstorm, an earthquake in California or Japan, but also man-made events: a major terrorist attack, a ship collision, the loss of an oil platform, the failure of a large IT provider, a systemic cyberattack, and several political risk and conflict scenarios. Each syndicate calculates them periodically, and Lloyd's uses them to monitor market concentration, set exposure limits and check that its central capital would suffice. The scenarios are revised as risks evolve: cyber scenarios have been enriched and sharpened as the market grew. For an underwriter, the discipline is valuable because it forces a look at specific events rather than averages, and because it reveals accumulations across lines that each team, separately, does not see.
Hypothetical case: a syndicate runs the Lloyd's systemic cyberattack scenario and finds its net loss would exceed 40 percent of its capital, adding up its cyber policies, financial lines covers and silent property exposures. It cuts its cyber capacity and buys excess of loss protection.
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