New HD Japan quake & tsunami risk model released by RMS

Catastrophe risk modelling and analytics specialist RMS has announced the launch of a new and updated high-definition risk model for Japanese earthquake and tsunami risks, which incorporates the latest seismic map data as well as learnings from the Tohoku and Kumamoto quakes.

The understanding of Japanese earthquake risks and the threat posed by earthquake driven tsunamis evolves with every major event and RMS’ update brings the latest scientific understanding of major earthquake events in Japan, along with a high-definition view of the risk, to insurance, reinsurance and insurance-linked securities (ILS) market participants.

Mohsen Rahnama, Chief Risk Modeling Officer, RMS, commented on the launch, “Our new model is more transparent and allows for a more realistic representation of claims processes and payout. The Japan Earthquake and Tsunami HD Model provides a comprehensive view of earthquake risk for Japan, with the flexibility to meet the requirements of the evolving catastrophe risk management market.

“Japan is one of the most seismically active areas in the world. Our new model offers a greater understanding of these risks, as well as improved risk differentiation, enabling better underwriting and risk management decision making.”

Being a high-definition (HD) model, the new Japan earthquake and tsunami risk model will benefit from RMS’ HD Financial model engine, which makes understanding how losses flow through impacted reinsurance contracts easier and provides insight into contribution metrics and the key drivers of risk across portfolios.

The model can be more easily integrated into pricing and underwriting to help improve risk selection, which is key for ILS fund managers and collateralized vehicles when building portfolios. Enhanced risk pricing and selection will benefit companies, by enabling them to be more informed when underwriting and choosing which ceding companies to assume risk from.

The HD Financial model enables flexible and transparent loss calculations, while making the assessment of Japan specific policies and terms (e.g. step policy) simpler, RMS said.

With key research advancements from the 2017 Japan Seismic Hazard Maps now included in the model, as well as lessons learned from the scientific data available after the major 2011 Tohoku Earthquake and the 2016 Kumamoto Earthquakes, the new Japanese quake and tsunami model provides the latest views of risk to users.

The development of the new model took into account the latest research on key subduction zones surrounding Japan and the drivers of seismic hazard and risk, along with damage statistics and claims data from recent earthquake events.

The model considers the effects of and losses from ground shaking, tsunami inundation, fire following earthquake, liquefaction and landslides, for buildings, contents, business interruption, industrial facilities and builders risk, as well as explicit modeling of post-event loss amplification.

Additionally, the new risk model includes information on the latest local building codes and construction practices, reflecting the building stock distribution in Japan and the liquefaction model framework has been redesigned using Japan-specific data to more accurately assess liquefaction risk at a local level, taking into account learnings from recent events in New Zealand as well.

Advances in risk models help insurance, reinsurance and insurance-linked securities (ILS) underwriters to more accurately understand, evaluate and price risks, which in a peak catastrophe zone like Japan is key to portfolio performance.

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