Risk modelling firm AIR Worldwide has announced an expansion and update of its Southeast Asian earthquake and typhoon risk models, aiming to provide insurance and reinsurance capital providers with a comprehensive and up-to-date view of risk.
The updated Southeast Asia earthquake model now offers the ability for insurance or reinsurance industry users, including ILS managers with exposure to earthquakes in the region, to account for both tsunami and liquefaction sub-perils for Indonesia, the Philippines, and Taiwan.
With insurance-linked securities (ILS) transactions and reinsurance contracts for earthquake risk often covering damage caused by tsunami or liquefaction this expansion of the risk model will prove valuable to both alternative and traditional capacity providers.
AIR’s Southeast Asia typhoon model has been updated to include a new precipitation-induced flooding module, which features high-resolution data and also a probabilistic storm surge module for Hong Kong, the Philippines, and Taiwan.
At the same time, the typhoon and earthquake models coverage of Southeast Asia have been expanded to include the following countries and territories: Guam, Macau, Saipan, and Vietnam for typhoon risk; and Hong Kong, Macau, Vietnam, Singapore, Thailand, Brunei, and Malaysia for earthquake risk.
The earthquake model update has incorporated the latest historical seismic data from both global and local sources, as well as active fault data, GPS data on crustal deformation, use of high-resolution soil maps to assess the potential for liquefaction, and damage survey data from recent earthquakes. The model has also been subjected to a thorough peer review of the hazard and vulnerability modules.
Meanwhile, the AIR Typhoon Model for Southeast Asia offers users a probabilistic approach for determining the probability of insurance or reinsurance losses from typhoon winds, precipitation-induced flooding, and storm surge. The model results were validated using loss data from the Southeast Asia insurance market.
“As one of the largest primary insurers across Southeast Asia, it’s in our best interest to use a comprehensive risk management tool to better understand and quantify natural catastrophe risk in this region,” commented Takuya Yano, head of the risk management team for the International Supervisory Department of Mitsui Sumitomo Insurance. “We look forward to using AIR’s models because their scope of model development covers not only updates to existing models but also includes expanded territories and countries, new lines of business, and new sub-perils such as tsunami and storm surge. We believe that the upcoming AIR models will give us new and valuable insights for addressing natural disaster risk in Southeast Asia.”
“We’re very proud of our ability to understand and interpret catastrophe models when writing insurance and reinsurance across the world,” stated Hajime Sano, head of catastrophe analytics at Sompo Risk Management & Health Care Inc. “We look forward to leveraging the new AIR models that will allow us to create our view of risk from earthquakes, typhoons and their associated sub-perils in Southeast Asia, thereby improving our catastrophe risk management.”
“Southeast Asia has some of the fastest-growing economies. Located partly on the Ring of Fire, it’s seismically one of the most active regions in the world, with earthquakes of magnitude 8.0 or larger occurring once every eight to ten years, on average,” Dr. Jayanta Guin, executive vice president and chief research officer at AIR Worldwide, explained.
“On the atmospheric side, more than 25 tropical cyclones typically form each year in the Northwest Pacific. A wealth of data has become available due to the number of catastrophes in this region, and AIR scientists have been conducting extensive research over the past ten years to better understand these events. The results are enhanced catastrophe models that will provide insurers and industry stakeholders with the most advanced view of shake, tsunami, liquefaction, wind, precipitation-induced flooding, and storm surge risk in Southeast Asia,” Guin continued.
Both the AIR Earthquake Model for Southeast Asia and the AIR Typhoon Model for Southeast Asia feature detailed industry exposure databases at 1-km grid resolution, enabling users to factor in each covered country’s unique building practices.
Both of the models also include data from studies of local building codes, damage surveys, loss experience data, and structural engineering research, as well as information on the most recent risk counts, replacement values, occupancy, and construction types of insurable structures, including builder’s risk.
Both of the risk models have separate damage functions for industrial facilities and tall buildings, vital for commercial insurance and reinsurance or ILS sector users. AIR notes that industrial facilities and tall buildings are among the highest-value risks in Southeast Asia and account for a significant portion of insured value in these countries.
“This has been one of our most comprehensive model expansions to date,” commented Dr. Milan Simic, managing director of international operations at AIR Worldwide.
“We believe that our significant effort will provide clients with a better understanding of the risk and therefore a distinct advantage when writing business in this region. Furthermore, only a fraction of the total economic risk from natural disasters is covered by the insurance industry today, particularly in Asia. We’re confident that the adoption of our innovative new models will help narrow the protection gap by providing the industry with the necessary tools to better understand and manage catastrophe risk in this part of the world.”
These model updates are particularly relevant to ILS fund managers and investors, as the expansion of ILS into Asia through collateralised reinsurance, or quota shares and sidecars, continues. This expansion has meant ILS investors becoming increasingly exposed to natural peril risk in the region and more granular risk analysis can only help ILS managers better control portfolio exposures.