Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

RMS helped TCIP improve transparency of Bosphorus cat bond trigger


Leading catastrophe risk modelling firm RMS, has again provided comprehensive risk analysis for the Turkish Catastrophe Insurance Pool’s (TCIP) parametric earthquake cat bond, Bosphorus (Series 2015-1), further improving the transactions transparency this time around.

“After the positive outcome of the Bosphorus 1 Re transaction in 2013, TCIP and RMS collaborated once again to create a new risk index, using ground motion observations across an expanded network of 73 strong-motion seismometers,” advised Süha Çele, executive board member of Eureko Sigorta A.Ş., the Turkish-based firm that manages the TCIP.

Expanding the network of seismometers is not only better for the coverage provided by the cat bond, but also for the investors in the deal. It provides enhanced granularity of reporting and more monitoring stations to fall back on in the event of a major quake.

According to Charlotte Acton, Manager of RMS’ capital markets team, the use of a ground motion index approach based on station observations, “allows the sponsor to both tailor the index to their exposure to minimize basis risk and to adjust the index over time as their exposure or coverage requirements change.”

This, Acton continues to explain offers several advantages to an epicentre-based approach, for example, but urges that it should still be used in conjunction with “robust modelling of the underlying hazard used in the calculation of an event’s index value.”

The updated index, which is the result of analysis and developments from both the TCIP and RMS, better serves the current needs of the TCIP according to Acton, utilising an expanded network of 73 strong-motion seismometers.

“By including simulation of hazard uncertainty in its methodology for modelling such parametric earthquake transactions, in addition to careful consideration of local site conditions and time-dependent earthquake recurrence on the North Anatolian Fault, RMS was able to more effectively capture the risk profile of the deal,” continued Acton.

RMS’ ability to more effectively capture the risk profile is evidenced in the success of the deal, which witnessed strong demand as noted by reinsurance director at Eureko Sigorta A.Ş., Remzi Duman, who said; “The transparent trigger mechanics were understood and accepted by investors, and strong demand made this a highly successful transaction.”

As firms like RMS continue to develop, expand and innovate within their comprehensive risk modelling platforms, the understanding and therefore more efficient coverage structures and schemes can be designed, established and utilised to protect against a growing set of risks in all corners of the world.

To conclude, Ben Brookes, Vice President of capital markets at RMS commented; “The successful Bosphorus deal shows that investors are keen to take on diversifying perils when the risks are adequately understood through robust modelling.

“RMS’ experience with deals such as MetroCat Re and Bosphorus 1 Re helps public bodies such as TCIP transfer catastrophe risk to the capital markets through intelligently structured, insurance-linked securities (ILS).”

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