PCS designates Turkey hail storms & floods as catastrophe loss

Property Claim Services (PCS), a division of Verisk Analytics, has designated the two recent Turkish hail storm and flooding events as catastrophes, kicking into action its process to monitor the events and aggregate as well as report on the insurance and reinsurance industry loss.

Through its PCS Turkey operation, a service launched by PCS in 2016, the firm reports on industry losses caused by all natural and man-made perils, with an event reporting threshold set at just TRY 30 million, currently around US $8.5 million.

As we reported earlier today, the two outbreaks of storms in Turkey are estimated to have caused the local insurance industry as much as US $200 million of losses.

Hail damage to cars was extensive from the two storm outbreaks in Turkey - Photo via PCS

A July 18th outbreak of severe rainfall, hail, strong winds, lightning and associated impacts is estimated to have caused somewhere around the TRY 200 million of loss, while a more severe storm system on the 27th July saw significant hail impacts, as well as flooding, rainfall and wind resulting in an estimated TRY 500 million. Together the early estimates of a TRY 700 million impact would suggest an insurance and reinsurance industry loss of as much as US $200 million.

Hail damage to buildings from Turkey storm - Photo via PCS

Menekse Ucaroglu, General Manager of the Istanbul Underwriting Center (IUC) and a partner in PCS Turkey, commented on the industry loss; “Powerful storms like this one factored into our thinking in the earliest planning stages of PCS Turkey. While it can be tempting to focus only on the biggest perils in order to make the loss aggregation process simpler and less frequent, the IUC thought the standard PCS catastrophe approach – all natural and manmade perils – would be more appropriate. And recent events demonstrate this. Severe hail may be rare, but as we saw over the weekend, it’s possible. Likewise, the first new PCS Turkey event following our historical database was not from one of the major natural catastrophe perils. However, both recent events are certainly relevant to insurers in Turkey and reinsurers worldwide.

“The role our insurance industry plays in helping our friends and family recover from a catastrophe event is profound, and I’m proud of the work we’re doing with PCS to help with that process. Serving our clients well, after all, means serving our neighbors well.”

Tom Johansmeyer, AVP at PCS, added; “When we started watching this event over the weekend, Menekse, Ted, and I began working with each other almost immediately. We knew our clients would look to PCS Turkey for early information and insight. Executing on our client service commitment means a lot to us. After all, we know our clients and users – and we work with them often on a wide range of projects and ideas. Helping them out means more to us than just checking a box on a service-level checklist. When I’m in Istanbul next, I want to make sure I can be proud of the work we’ve done together in supporting them when they need PCS Turkey most.

“With PCS Turkey’s broad scope – all natural and manmade perils – we need to be ready for the truly unexpected. In the past year, we’ve worked with the IUC on two events: hail and terror. Both are new for the PCS Turkey service, as our full historical database (which goes back to 1999) consisted of earthquake and flood only until the 2016 and 2017 events occurred. Our methodology is designed to adapt to a wide range of events to meet the needs of the insurers and reinsurers we work with. The broad list of perils and low event designation threshold (TRY30 million) have helped us create a loss aggregation platform that can be applied to the many events that could affect reinsurers, even if they aren’t the extremely remote events that concern global risk-bearers most.

“In all our property-catastrophe markets, we’ve seen smaller events that are still relevant to the effective risk and capital management – be they terror and hail in Turkey or winter storm in the United States. At the end of the day, industry loss aggregation is useful as much more than just an ILW trigger. While transferring retro risk is obviously important, PCS has long held that catastrophe loss data is crucial throughout an insurance company’s operations, and with the latest event in Turkey, that’s certainly evident.”

It’s uncertain at this time whether any reinsurance contracts, or instruments such as ILW’s could be exposed, but the loss event could be of the magnitude where some local insurers may find themselves stressed sufficiently to be looking to their reinsurers for support.

Ted Gregory, Director, PCS also said; “When an unexpected event like this occurs, track record and familiarity are crucial to successful loss aggregation. In the past year, we’ve worked on the first Florida hurricane in a dozen years and a Canadian wildfire that became the largest in the history of the North American insurance market (according to PCS data). Add to this our experience working with the IUC on the PCS Turkey historical database and our first new catastrophe event in Turkey last year, and it becomes clear that PCS and the IUC are ready to take swift action to support the Turkish insurance industry and the reinsurers worldwide that they rely on.

“Most important – as we’ve seen in the United States, Canada, and Turkey – there’s no substitute for having boots on the ground. Thanks to local insights from Menekse and the IUC, we were able to get a fast sense of impact, particularly because of similarities to what we’ve seen in Texas hailstorms. Industry loss aggregation isn’t strictly a data exercise. You need to know what’s happening on site, which is why PCS makes visits to some catastrophe event locations and maintains a wide network of independent adjusters and other organizations involved in post-catastrophe support. Industry loss aggregation works best when eyes and ears supplement bits and bytes.”

Estimates are useful but actual aggregated claims data and insights gleaned from the affected area can be much more valuable to re/insurers as they look to make an assessment of impact from such an event.

Additionally, for use in triggers for instruments such as ILW’s, catastrophe bonds and other industry loss triggered reinsurance arrangements, aggregated data helps to give investors backing these transactions the confidence that data sources can be trusted.

These events could provide a bit of a wake-up call for re/insurers operating in Turkey and for any ILS funds or ILS investors allocating capital to Turkish reinsurance programs.

Many ILS investors may think of earthquake exposures alone when looking at Turkish catastrophe reinsurance programs, but these severe hail and flood events demonstrate that there are more perils that can affect the region which they need to be aware of.

Johansmeyer commented; “With the latest event designation activity from PCS, it looks like it’s time for reinsurers to take a fresh look at how they manage their risk and capital for Turkish risks. Rather than focus on the two predominate perils – earthquake and flood – a full view of all natural and manmade perils may afford more opportunity to optimise capital deployment. Retro purchasing, perhaps, should involve more than the two main perils. And in thinking about catastrophe bond issuance, the fact that PCS has demonstrated an ability to work beyond earthquake and flood should provide sponsors greater flexibility in the future.”

Also read: Turkey hail storms & floods to cost insurers as much as US$200m.