Estimated maximum claims from the risk of catastrophe losses using value-at-risk

The increasing catastrophic event has given rise to substantial property losses over past decade. In catastrophe insurance products, the form of risk is the value of the loss in the event of catastrophe, where the risk value is one of the factors measuring the potential for claims that will occur. This paper discusses how to estimate the maximum potential claim from the risk of catastrophic event. In this case, the potential claim is obtained based on the value of losses due to flood in Indonesia (2010-2020). To estimate the maximum potential claim, the Extreme Value Theory (EVT) method is used. There are several stages in this research. The first step is, determine the threshold value to get extreme data. Then, the Kolmogorov Smirnov test was carried out to determine the suitability of the extreme data with the Generalized Pareto Distribution (GPD). After that, estimate the GPD parameters. Then, calculate the Value-at-Risk (VaR) value as a measure of the maximum potential claim. The results of this study get the maximum potential claim for the next year is of IDR 13.9365058 trillion with a 95% confidence level. Based on the estimated potential claim, it can be used as the basis for making catastrophe insurance products that are suitable.