CGI EU windstorm loss forecast system could assist re/insurers and ILS

by Artemis on February 25, 2016

The European Centre for Medium-Range Weather Forecasts (ECMWF) has selected international tech firm CGI to develop a system that would aid insurance, reinsurance and insurance-linked securities (ILS) players forecast future losses from windstorms across Europe.

The new venture will be led by the European Commission and CGI has been asked to develop a proof of concept for a risk analysis service that forecasts future windstorms, which can create huge losses to the insurance and reinsurance industry.

CGI’s forecast system will be integrated into the European Union Copernicus programme, which aims to obtain and analyse data from land, sea, air, and satellites to aid the future predictions of weather systems.

Insurers, reinsurers, and ILS funds and managers have exposures to European windstorms, and utilise modelling capabilities and historical data to assess their portfolios and price risks, so any advancement of existing models or the establishment of a new system is likely welcomed news.

“The number and size of losses suffered by the insurance sector due to natural disasters caused by atmospheric hazards, and severe wind storms in particular, has increased steadily over recent decades,” says CGI in a press release.

According to data from the Artemis Deal Directory, currently just over $1.3 billion of catastrophe bonds cover European windstorms as a stand-alone peril.

Furthermore, European windstorm coverage is included in several catastrophe bonds that protect a variety of international perils, the recently issued $300 million Galileo Re Ltd. (Series 2016-1) deal is an example of this.

Potentially then, the work that will be undertaken by CGI could result in new loss triggers for collateralized reinsurance, ILS, catastrophe bonds and so on, as the risk becomes better understood enabling more comprehensive and sophisticated views of the exposures.

The flexibility and variety of structures and triggers featured in the ILS sector is testament to its continued growth, and the introduction of new triggers, or amendments to existing ones could be aided by the new CGI system.

CGI explains how the project will “produce key indicators such as number of European winter windstorms per year, average maximum wind speed of winter windstorms and average storm severity,” the type of informative and useful data required for new ILS loss triggers to be designed and implemented.

The firm says that it will use historical data on hundreds of windstorm events going back as far as 1900, and run this through “advanced catastrophe modelling framework to produce high-quality forecasts of potential future losses from severe windstorms.”

CGI has also expressed its commitment to supporting the insurance sector, stressing that it will lead engagements to ensure the new system produces the most useful information, including projected insurance industry loss estimates.

The two-year contract awarded to CGI from the ECMWF will see the firm develop a forecast system that will assess the impact of severe windstorms in the next 35 years.

Leading a team of specialists, which includes two national meteorological agencies, two universities, and industrial partners from the space and insurance sectors, CGI hopes to develop the Wind Storm Information Service (WISC) system, “to help the insurance sector better understand the level of risk.”

Head of the Copernicus Climate Change Service at ECMWF, Jean-Noël Thépaut said; “A key objective of the Copernicus Climate Change Service is to combine observations of the climate system with the latest science to develop authoritative information about the past, current and future states of the climate and its impacts.

“We are delighted that CGI is leading this first proof-of-concept and has brought together an experienced team to demonstrate how this service can bring clear benefits to the insurance sector.”

Steve Smart, SVP of Space, Defence, National and Cyber Security at CGI added; “We understand the huge potential of exploiting climate data from space, into information services which bring business benefit to commercial markets.

“We are excited to work with the insurance sector to demonstrate the value that the Wind Storm Information Service can deliver to them and we intend to develop other services in the future.”

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