Willis Re, the reinsurance broking arm of global broker Willis Group, has announced the launch of a new Japan tsunami risk model with both probabilistic and deterministic functions, as it seeks to advance the industry’s understanding of catastrophic tsunami losses.
In the wake of the 2011 Tohoku earthquake the catastrophic potential of Japanese tsunami risks has become a much more important issue for the insurance, reinsurance and insurance-linked securities (ILS) industry. Participants are keen to understand this peril more accurately, to enable better pricing and underwriting of risks in the region.
The in-house developed Japan tsunami risk model, which was developed alongside the Willis Research Network, is the first tsunami model with both probabilistic and deterministic modelling functions that has been created by a broker.
The new risk model combines both tsunami loss information with earthquake shaking damage output, a useful combination for catastrophe bond exposure to be better understood now that more Japanese earthquake bonds tend to include tsunami risks.
The new model provides both Willis Re and its clients with the latest intelligence to quantify and manage risk from extreme Japan tsunami events, where historically the understanding of losses and loss potential has been minimal.
William Thompson, Regional Director for Willis Re Japan, commented on the launch of the model; “The tragedies of the India Ocean tsunami in 2004 and the tsunami that followed the Tokohu earthquake in 2011 plainly illustrated how damaging these catastrophes can be. They highlighted the need to better understand and quantify the risks from secondary perils.
“Japan earthquake risk has been rigorously investigated and modelled but the complexity of modelling tsunami has led to a significant gap in the industry’s ability to quantify risk for severe earthquake events. The Willis Japan Tsunami Model is another vital step towards closing this gap and providing Willis Re clients with the most comprehensive view of risk.”
Through the Willis Research Network, Willis Re has been working closely with Tohoku University and UCL on the development of the tsunami risk model since 2010.
Rowan Douglas, Chairman of the Willis Research Network, said; “The Willis Japan Tsunami Model demonstrates how the Willis Research Network can harness the expertise of leading academics to meet the direct needs of the industry. By combining academic excellence with in-house analytics and market expertise we have developed an independent model whilst also being in a unique position to analyse the new tools that are now emerging from model vendors.”
Professor Fumihiko Imamura, Director of Tohoku University’s International Research Institute of Disaster Science (“IRIDeS”), added; “IRIDeS is proud to have researched tsunami hazard and risk management since 2010 in partnership with Willis Re through the Willis Research Network. Our partnership is rooted in the 2004 Indian Ocean earthquake where there were significant losses of life and property caused by the resultant tsunami. This was followed by the 2011 Tohoku earthquake, and the real possibility of a Tonankai-Nankai mega-thrust earthquake, which could result in unprecedented losses relating to tsunami.
“To date we have conducted research into a variety of related research fields, including tsunami data collection and tsunami simulation, as well as the development of tsunami hazard maps and vulnerability function. We hope that the outcome of this research will be able to foster greater tsunami risk management and disaster prevention in the future.”
Tiziana Rossetto, Director of EPICentre, UCL, also commented; “We, at EPICentre, are proud to have worked with Willis Re for several years on the development of the tsunami model. Our focus has been on the development of the vulnerability model, linking tsunami intensity with mean damage and loss. There are significant obstacles to estimating tsunami losses due to limited availability of data for low-frequency/high-severity events. The current tsunami vulnerability model utilizes rigorous statistical analysis of detailed data from the 2011 Japan Tsunami, resulting in a model which represents the state-of-the-art in estimating losses per building due to tsunamis.
“Over the coming years we are utilizing detailed analysis and unique testing facilities, able to generate the longest tsunami-like waves of any facility in the world, to better represent the behaviour of structures under tsunami action. This is enabling us to remain at the forefront of vulnerability analysis for locations at-risk of tsunamis around the world.”
Japanese tsunami risks are one of those peak perils that has been difficult to model in the past, but with new technological advancements and initiatives such as the Willis Research Network and it’s collaboration with academia helping to drive forwards our understanding, the peril is becoming better understood.
This is particularly important in the ILS and catastrophe bond space, where many earthquake reinsurance or retrocessional covers also cover losses from tidal wave or tsunami’s.
The most recent cat bond to launch, Zenkyoren’s Nakama Re Ltd. (Series 2014-2) is a fine example, as this $200m Japan earthquake cat bond is also exposed to tidal wave losses that impact Zenkyoren.
As a result, any improvement in the understanding of Japanese tsunami impacts and potential losses will be welcomed by the insurance-linked securities (ILS) market as well as insurers and reinsurers.