PERILS adds Italian market loss data, could facilitate Italy earthquake catastrophe bonds

An announcement this morning from Zurich based PERILS AG, an independent provider of industry-wide European catastrophe insurance data and loss indices, suggests that it may not be too much longer before we see a catastrophe bond featuring Italian earthquake risk. The catastrophe insurance data provider has extended its coverage to Italy and in a first will now make industry loss data on earthquakes and floods in Italy.

Available immediately, PERILS will now be offering data on property insurance market sums exposed to earthquakes and flooding in Italy. As well as the exposure information and data, PERILS will also provide event industry loss data after earthquake or flood events which affect Italy.

Property sums insured and event loss data will be collected from primary insurers in Italy on a CRESTA Zone (2-digit postal code) and Property Line of Business basis. Based on the data collected PERILS will provide estimates of market exposures, based on the total sums insured, and market losses. This information has a number of uses, including risk assessment, development of new insurance products and for industry loss based insurance and reinsurance products such as ILWs and catastrophe bonds.

PERILS has released some event loss data for the two earthquakes which took place in Emilia-Romagna on 20th and 29th May 2012. PERILS estimates the insurance industry loss from each event as EUR 802m for the 20th May 2012 quake and EUR 436m for the 29th May 2012 event. The combined total industry loss for the two earthquakes is estimates at EUR 1.24bn, making it the biggest ever insured loss for the Italian market. The loss data for each event is available at both a CRESTA zone and Property Line of Business resolution.

Commenting on the announcement, Eduard Held, Head of Products at PERILS, commented; “The inclusion of Italy marks another milestone in the expansion of the services provided by PERILS. Italy adds a new and important insurance market to our database, one which has significant exposures to natural catastrophes. We are grateful for the support of the Italian insurance industry as well as the Italian Association of Insurance Companies (ANIA), for helping to make this possible.”

Luzi Hitz, CEO of PERILS, said; “PERILS’ mission is to increase transparency and understanding in relation to natural catastrophe risk by making fundamental data such as sums insured and event losses available. By adding Italy to our market coverage, this further enhances our ability to do this. We are hopeful that, similar to European windstorm and UK flood, our Italian industry data will facilitate new developments in catastrophe risk assessment and catastrophe risk transfer, and ultimately contribute to the better management of natural catastrophe risks in Italy.”

Italian earthquake risk is a major peril for the insurance and reinsurance industry and one which to date we have not seen in the catastrophe bond market. With the availability of industry exposure and post-event industry loss estimates it is now possible to structure an industry loss based cat bond focused on Italian quake risks.

Today’s announcement will likely stimulate some insurers and reinsurers to begin to look at the feasibility of sponsoring such a cat bond. Given the appetite for catastrophe risk and especially for diversifying cat bond deals among investors, any such Italian earthquake catastrophe bond would likely be extremely popular among the capital markets participants in the reinsurance industry.

Italian flood coverage is another important addition to the PERILS stable of loss data products, however flood risks are still thought to be a way off becoming transferable to the cat bond market due to current limitations in risk models and uncertainty over the risks suitability for the market right now.