RMS works to reduce uncertainty in China typhoon risk model

by Artemis on August 26, 2014

Risk modelling, analytics and catastrophe risk management firm RMS has been working alongside China Property and Casualty Reinsurance Company (China Re P&C) in a project seeking to reduce uncertainty in its China typhoon risk model.

A technical collaboration between RMS and China Re P&C, one of the leading non-life reinsurance companies in China, provided RMS with new and deeper insight into China’s typhoon risk, which the risk modeller said has helped it to reduce the uncertainty in the RMS China Typhoon model and strengthen its risk differentiation capability.

“China Re P&C’s extensive research into China’s catastrophe risk, which has been carried out over many years, has enabled us to create a robust historical record of catastrophe data,” commented Sen Chen, vice president and chief actuary at China Re P&C. “RMS is an important risk management partner for us. We’ve been licensing RMS catastrophe models since 2010 and have established a strong and cooperative relationship.”

“We are delighted by the opportunity to collaborate with China Re P&C to advance our China Typhoon model. Working together has enabled us to provide a more robust view of China typhoon risk,” added Jason Futers, senior vice president and head of Europe and Asia sales for RMS. “Our model enables enhanced risk differentiation and pricing and portfolio-management of typhoon risk; a peril that is increasingly becoming a driver of annual losses for the industry.”

The RMS China Typhoon model helps users to better understand China typhoon risk and better inform their capacity allocation and capital management decisions. It is also an important tool to help insurers and reinsurers to determine appropriate insurance and reinsurance structures and premium rates.

The model includes the ability to analyse the impact of coastal flood for the entire China coastline and also includes a state-of-the-art, fully dynamic storm surge model for Hong Kong, taking into account unique complexities of the coastline. The model covers losses from storm-surge-driven coastal flooding, rainfall-driven flood and wind to provide a complete view of China typhoon risk – a region where flood can contribute up to 80 percent of the total typhoon risk.

As these models for perils such as China typhoon advance and the historical loss data collection grows the ability to model these risks improves, becomes more accurate and eventually will support the issuance of instruments such as catastrophe bonds in the region.

China itself is keen to leverage the capital markets as a source of contingent catastrophe risk financing. Robust and accurate risk models are a prerequisite for these efforts so any advancement in the industries view of China typhoon, which is one of the countries main catastrophe exposures, will likely help to stimulate increased use of insurance, reinsurance and other risk transfer tools.

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