PERILS estimates potential Euro windstorm loss of €36.7 billion for QIS5

PERILS AG, the independent Zurich-based company providing industry-wide European catastrophe insurance data, have stepped forwards to provide an estimate for low-frequency high-impact European windstorm loss potential to help with the Solvency II inspired Quantitative Impact Study 5 (QIS5).

The QIS5 is being undertaken to feed in to the European Commission’s further development of the new Solvency II regulations and help to shape the final Solvency II landscape. QIS5 represents a last chance for field testing the thinking behind Solvency II regulations and so it’s vital that people are involved so the market understands the coming impact of the new regulatory environment.

PERILS has estimated the gross property windstorm loss for the nine markets they cover (Belgium, Denmark, France, Germany, Ireland, Luxembourg, the Netherlands, Switzerland and the United Kingdom). The QIS5 gross occurrence-based loss for all nine markets combined and including geographical diversification effects is €36.7 billion.

Calculations are based on the PERILS Industry Exposure Database 2010 with sums insured per cresta zone. PERILS applied the QIS5 windstorm scenarios to the nine markets they cover (which contribute to the largest probable loss). PERILS say it is important to note ‘that the calculated QIS5 windstorm occurrence losses are indications only. Final technical specifications under Solvency II for non-life natural catastrophe risk may differ from the current QIS5 parameters’.

Luzi Hitz, CEO of PERILS AG said: “Natural catastrophe risk is likely to be one of the main drivers for the capital requirement under the upcoming Solvency II regime. From a pan-European perspective, Windstorm tops the list of Cat loss potentials because of the large geographical extent of a major event of this type. It is therefore essential for regulators and market participants alike to have a clear understanding of the potential market impact caused by such a low probability / high impact event. PERILS’ loss estimation using the QIS5 scenarios aims to contribute to this understanding.”

As well as providing valuable data for the QIS5 this estimation demonstrates the size of losses that Europe could experience should a 1 in 200 year type windstorm hit the region. PERILS is fast becoming a great asset to the European catastrophe reinsurance and cat bond market as it is providing the data necessary to make trades more accurate, efficient and measured.