Certain Taiwanese news sources are reporting that the possibility of using catastrophe bonds as a way to spread the risk of earthquakes in Taiwan has been discussed within government circles. The topic was raised by legislators in a question to an executive of the Taiwan Financial Supervisory Commission (FSC) on the 16th March.
The China Post reported that almost three-quarters of the Taiwanese population are exposed to earthquake risks because of a lack of residential earthquake insurance. Taiwan Residential Earthquake Insurance Fund (TREIF) executives said that less than 25% of houses in Taiwan are covered by earthquake insurance, which is often required by banks supplying mortgages. The TREIF holds a reserve fund which it is said isn’t sufficient to cover a major earthquake event. They are being encouraged to increase that reserve fund significantly in the wake of the disaster in Japan.
The Taiwan FSC have said that they will evaluate the potential of catastrophe bonds to provide reinsurance cover for earthquakes in the country.
One of the reasons cited for this interest is a fear that reinsurance premiums will rise after the Japan quake and that catastrophe bonds could become a cost effective alternative and a way to spread the risk to the capital markets.
The FSC has also called on Taiwanese firms to disclose any losses they have suffered as a result of the Japan earthquake.