Important news this morning from PERILS AG, the independent Zurich-based company providing industry-wide European catastrophe insurance data and loss indices for insurance-linked security and industry-loss warranty transactions, who have announced that they are expanding their services to include coverage for a new class of risk, UK flood. The addition of inland flooding for the UK makes it increasingly likely that we will again see a catastrophe bond covering flood risks come to market.
PERILS have become the defacto source of European industry loss data for European windstorm risks and are reporting agency for every recent Euro wind cat bond transaction. On top of that their loss data and indices are regularly used for industry-loss warranty transactions as well.
As of the 1st January 2012 PERILS will begin to collect loss data for inland flood events in the UK for any event which results in a market loss above €200m. This is in addition to their normal collection of European windstorms and related risks such as storm surge data.
As of the 1st April 2012 PERILS will make the UK inland flood data available to the market, along with updated European windstorm exposure data for the following eleven countries covered by PERILS: Belgium, Denmark, France, Germany, Ireland, Luxembourg, the Netherlands, Norway, Sweden, Switzerland and the UK. PERILS say that the inclusion of floods means that their database will now include the two most important natural catastrophe risks for the UK, windstorm and flood.
The data will be at a similar resolution to the European windstorm coverage and will be collected from primary insurers on a CRESTA zone and property line of business basis. This data allows PERILS to create independent and objective estimates of market exposure and market losses. This information can then be used in catastrophe risk assessment and industry-loss based risk transfer transactions using insurance-linked securities or industry-loss warranties.
Luzi Hitz, CEO of PERILS, said; “The inclusion of UK flood risk marks another milestone in the expansion of the market coverage provided by PERILS. We are grateful for the support of the UK primary insurance industry in making this happen and take it as further encouragement to continue to broaden our coverage, both in terms of geography and perils. Our mission is to increase transparency in the natural catastrophe risk arena, and by adding UK flood risk to our market coverage, this is another significant step in this direction.”
Eduard Held, Head of Products at PERILS, added; “We are proud to be able to announce this coverage extension, which will not only enable a better understanding of UK flood risk, but at the same also facilitate the risk transfer to the reinsurance and capital markets by using the PERILS industry loss estimates as underlying triggers.”
Peter Frei, Head of Data Management at PERILS, said; “We are very pleased with the commitment shown by our data providers to PERILS and the constructive relationship we have with them. This is essential if we are to construct a high quality market database, which in turn can serve as a reliable and objective benchmarking tool for portfolio steering and risk assessment.”
It will be interesting to see how quickly the market steps forwards to utilise the new source of flood data and industry-loss indices after their launch in April. Most discussion of flood risks has revolved around the creation of parametric indices or parametric triggers, as the feeling has been that this was likely the best way to achieve transparency in a flood cat bond. By looking to industry-loss indices as the trigger mechanism it may actually be simpler and quicker to get flood cat bond deals to market, just so long as investors have the appetite to take this risk on (which we understand they do from contacts in the market).
No doubt PERILS will look to expand their flood coverage to more countries within Europe in the near future.