New RMS China Typhoon Model could help facilitate insurance-linked securities

by Artemis on June 29, 2011

Risk Management Solutions (RMS) have launched a new risk model covering both mainland China and Hong kong typhoon risks. Flood is one of the key loss drivers of typhoon events and China is a country that suffers particularly badly. The RMS® China Typhoon Model is said to deliver significant advancements in quantifying flood risk from typhoons according to RMS.

There have been approximately nine typhoon landfalls on average every years since 1950 according to the China Meteorological Administration (CMA), showing just how big the risk is for China. With the growth and development of China accelerating the value of exposed property, industry and infrastructure is increasing rapidly making accurate modelling which facilitates improved risk transfer essential for the region.

“Although wind and flood damage are driven by the same typhoon events, the new model allows companies to quantify the losses independently,” said Matthew Grant, global head of client development at RMS. “By gaining a stronger grasp of what’s driving the loss from typhoons, companies will be able to select risks more confidently and capitalize on opportunities in this rapidly emerging market.”

The new model is based on data from over 24,500 storms, including key historical events, taken from the CMA’s records from 1945 to 2009. The model has been developed by RMS in collaboration with National Meteorological Center (NMC), and Branch of CMA, Beijing Normal University (BNU), as well as with Prof. Johnny Chan at City University of Hong Kong.

“We have leveraged our long-standing relationships with an extensive network of consultants and government agencies in China to validate the wealth of scientific information in the new model,” said Stefan Beine, senior director at RMS.

As part of the release RMS have updated their Hong Kong model with new data sets and enhancements as well.

Accurate data and risk modelling tools are essential to reinsurers operating in China as the potential financial exposure to catastrophe and weather risks grows as the development of the country accelerates. As the dollar value of exposures grow it’s likely we’ll begin to see discussion and perhaps use of catastrophe bonds and insurance-linked securities in the region.

This new risk model could help facilitate the creation of ILS in China. We asked RMS for their thoughts on this. Ben Brookes, Director of RiskMarkets at RMS said; “RMS is actively investigating the possibilities for ILS triggers, including the potential expansion of our Paradex suite to cover China, subject to sponsors’ demand for such an index. We look forward to the possibility of using this new model to help facilitate ILS in a rapidly emerging part of the insurance market.”

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