Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

K-Net earthquake monitoring outage delays fate of Japan quake cat bonds


Data required to identify whether losses will be borne by some of the catastrophe bonds exposed to the Japanese earthquake disaster is not available at the moment. This is hindering risk modelling firm efforts to calculate index values and determine losses on the exposed cat bonds.

Some of the cat bond deals with Japanese quake exposure use data from the Japanese Kyoshin K-Net network of earthquake monitoring stations. This network went offline at the time of the earthquake on Friday 11th March and data only became available again on March 15th, according to K-Net. Here’s an initial PDF report from K-Net on the peak ground motions measured during the earthquake.

However, despite the network being back online and access to data from its archives made available again, Reuters is reporting that their sources are concerned that data is incomplete and several of the reporting stations are not listed anymore. There’s a good chance that stations could have been irreparably damaged and data could have been lost.

The uncertainty over the data could lead to delays in reporting the parametric index values for some of the transactions which use the K-Net data. We identified SCOR’s Atlas Capital VI cat bond from 2009 as definitely using K-Net data. It seems that Munich Re’s Muteki Ltd. transaction also uses K-Net data to measure ground motions. Other cat bonds may use this data source, but we believe they are second event deals and not going to suffer losses from this event.

This uncertainty may delay the calculation agents from reporting quickly but generally they have 30 days (sometimes more) to report back their findings to the transactions sponsors so as long as K-Net can recover any lost data we don’t foresee this becoming a major issue.

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