Measures expected 30-day volatility of the S&P 500. Below 18 = calm markets, 18โ25 = elevated uncertainty, 25โ35 = high fear, above 35 = extreme stress. Often called the market's "fear gauge."
How many of the 12 tracked assets have fallen more than 5% from their 30-day peak price. Higher numbers indicate broad-based market stress rather than isolated weakness. Each asset is counted once regardless of severity.
The mean pairwise Pearson correlation of 30-day log returns across all tracked assets. Low values (below 0.3) suggest diversification is working. High values (above 0.5) indicate assets are moving together โ a hallmark of contagion and systemic stress.
Sum of three sub-scores (VIX + Drawdown Breadth + Correlation), each scored 0โ3. Ranges: 0โ2 = SAFE (normal), 3โ4 = CAUTION (elevated), 5โ6 = DANGER (significant stress), 7โ9 = EXTREME (maximum alert). Higher scores predict increased insurance claims frequency.
| Line of Business | Signal Lift | 95% Conf. Interval | P-Value | Significance | Interpretation |
|---|---|---|---|---|---|
| Directors & Officers (D&O) | 1.61× | [1.21 – 2.26] | p = 0.0009 | ★★★ HIGH | 61% more claims above threshold when signal fires |
| Credit & Surety | 1.88× | [1.51 – 2.50] | p < 0.0001 | ★★★ HIGH | 88% more credit defaults in flagged windows |
| Business Interruption (BI) | 1.54× | [1.33 – 1.76] | p < 0.0001 | ★★★ HIGH | Tight CI — robust systematic correlation |
| Trade Credit | 1.29× | [1.10 – 1.56] | p = 0.004 | ★★★ HIGH | 29% excess claims lift in stressed market windows |
Methodology: Signal lift = P(claim | Cascade signal active) ÷ P(claim | no signal). Bootstrap CI: 10,000 resamples. Permutation test against null of no predictive relationship. All results validated on out-of-sample held-out data. V6 model includes 15 crisis events 2008–2025. Walk-forward OOS degradation: −4.1% (OOS slightly exceeds in-sample). Standards compliance: these results represent historical backtests and do not guarantee future performance.
| Factor | Score +1 (Stage 1) | Score +2 (Stage 2) | Score +3 (Max) | Metric | Window |
|---|---|---|---|---|---|
| VIX Level | ≥ 18.0 | ≥ 25.0 | ≥ 35.0 | CBOE Volatility Index | Daily close |
| Breadth (Drawdown) | ≥ 3 assets | ≥ 6 assets | ≥ 9 assets | Count with >5% 30-day drawdown | 30-day rolling peak |
| Cross-Asset Correlation | r̄ ≥ 0.30 | r̄ ≥ 0.50 | r̄ ≥ 0.70 | Avg pairwise Pearson r (log returns) | 30-day rolling |
| Score Range | Regime | Insurance Implication | Recommended Action |
|---|---|---|---|
| 0 – 2 | SAFE | Normal conditions; baseline claims frequency | Standard risk posture |
| 3 – 4 | CAUTION | Elevated stress signals; moderate claims uplift expected | Monitor; review new-business exposures |
| 5 – 6 | DANGER | Significant systemic stress; heightened claims risk window | Tighten underwriting; activate monitoring protocol |
| 7 – 9 | EXTREME | Maximum systemic stress; peak claims risk | Trigger parametric coverage; full escalation protocol |
Note: Each factor contributes up to 3 points; composite maximum is 9. Thresholds are calibrated from 2008–2025 crisis data and re-evaluated at each refresh cycle. Subscribe for automated email/webhook alerts on regime threshold breaches. Patent Pending.