Insurers and reinsurers begin the dance of cat-exposureestimation by plugging their books of business into a model, oftenaveraging the results with those from one or more of the otheravailable models from the three primary providers: AIR Worldwide,EQECAT (EQE) and Risk Management Solutions. They then incorporatecalculations and indications from their own internal models, ifthey have them.

Following this output of data, companies choose the result thatbest suits the purpose of the modeling exercise—to purchasereinsurance, to please rating agencies, or to convince regulatorsthat they needs to hike prices, experts explained.

Jayant Khadilkar, a partner at privately held reinsurance brokerand risk/capital management advisor TigerRisk in Stamford, Conn.,said companies need a thorough understanding of what goes into themodel, how they work, and how to translate the results.

"Models are a great tool, but they are just that—a tool," saidMr. Khadilkar, who is also a former AIR executive. "Understandingthe uncertainty in the model output and using the output in a waythat informs business decisions—and still reflects thatuncertainty—is extremely important."

Models can be a "validation of your own decision-making," saidFrank Pierson, executive vice president and chief technical officerat New York-based reinsurance brokerage firm Holborn Corp.

Mr. Pierson said he would never advise a client to use one modelover another. Each are "trying to do the best job" but come up with"very different answers, with different points of view."

And no matter how good the mode, none are fail proof. "You justcan't snap your fingers and get away from risk," Mr. Piersonsaid.