PowerPoint Presentation Wen-Ko Hsu.pdf · 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 0 100 200...

2016 International Training Workshop on Natural Disaster Reduction

2016/09/29

Taipei

Page:


Outlines

Global Natural Catastrophe Losses

Catastrophe risk modeling (CAT Model)

Natural Catastrophe Insurance Design- Using

CAT Model

TREIF (Taiwan Residential Earthquake

Insurance Fund) & CAT-Model

Q & A

1

Page:


Number of Natural Catastrophe events 1980-2015

2

Source: Munich Re NatCatSERVICE(2015)

Page:


Overall and Insurance Losses 1980 to 2015

3 Source: Munich Re NatCatSERVICE(2015)

2011 Japan 311

Tohoku Earthquake/tsunami

& Thailand Flood • Increasing Exposure

• Extreme events (Climate Change)

• Risk perception in high developed country

-Increasing Insurance loss

Page:


2015 Insured Losses vs. Overall Loss for each Continent

4 Source: Munich Re NatCatSERVICE(2015)

about 50% of Disaster economic losses

was undertaken by insurance.

Page:


Risk Transfer – an effective measures

UN Climate Conference of the Parties (COP)

mentions insurance solutions as a way to

facilitate adaptation to climate change.

At the G7 summit in Elmau in June 2015, the

member states agreed to launch a climate

insurance initiative (InsuResilience), highlighting

the importance of financial risk transfer

concepts, particularly for emerging and

developing countries.

5

Page:


How to Establish a Catastrophe Insurance?

How ?

How to Price the Catastrophe Risk?

QRA- Quantitative Risk Assessment

Actuarial ?

Because of the complexities of Natural Catastrophe, insufficiencies of historical loss data , and changes of environment, the general risk assessment method which based on the loss experience and actuarial method is not applicable for natural catastrophe risk assessment.

Cat-Model –Engineering Model

6

Page:


Outlines


Introduction of Catastrophe risk modeling (CAT

Model)


CAT Model


Insurance Fund) & CAT Model

Q & A

7

Page:


Catastrophe Risk Assessment and Management

8

RISK

Exposure

Risk Retention

Risk Reduction

Risk Transfer

Risk = Hazard * Vulnerability * Exposure

Risk Avoidance

Risk

Asse

ssme

nt

The Framework of Catastrophe Risk Model

9

Policy Portfolio risk

Policy 1 Policy 2 Policy N……….

Loc 1 Loc 2 Loc 1 Loc 1 Loc M……..

Policy Portfolio risk

Policy 1 Policy 2 Policy N……….

Loc 1 Loc 2 Loc 1 Loc 1 Loc M……..

Portfolio Data

Stochastic event

Hazard

Vulnerability

Financial

Deductible

Limit

Loss

Deductible

Limit

Loss

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

0 100 200 300 400 500 600 700 800 900 1000

Return Period (yr)

Ev

en

t L

os

s / T

SI (%

)

EQ-Zone

EQ-ZipCode

EQ-Policy

Exposure

Earthquake Flood Typhoon

10

Exposure Module Store and provide the information of exposure( risk type, risk loca-tion, value, policy conditions)

Event Module

Generate a series of possible typhoon events with full spectrum to the target area.

Hazard Module

Calculate wind speed (intensity) of interested sites, based on typhoon’s parameters (track, central pressure, translation speed) & site conditions (terrain, land cover).

Vulnerability Module

Calculate damage ratio of interested target based on wind speed (intensity) at site.

Financial Module

Calculate possible losses based on different financial perspective, e.g. ground up loss, insurance loss (event losses , loss exceeding probabilities, annual average loss).

The Framework of Korean Typhoon-Wind Model For Crop

Page:


General Framework of Catastrophe Risk Model

11

Catastrophe Event Module

Event

ID

Annual

Occurrence Rate

Event Parameters

(Magnitude, …)

#0001 0.00001 …

#.... … …

#9998 0.00020 …

#.... 0.00065 …

Mean

of Event Loss

CV

of Event Loss

11.2 bn 0.35

…

5.8 bn 0.42

0.5 bn 0.93

Hazard Module

Exposure Module

Location of

properties

Event

Parameters

Vulnerability

Module

Characteristics

of Properties

Financial Module

Financial

Conditions

Hazard Intensity Damage Ratio

Average Annual Loss,

Loss Exceeding Probabilities,

Loss scenario….

Event Table Event Loss Table

Event Losses

Major Output of Cat-Model- PML Curve and

Application (Capacity of the Scheme)

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

0 100 200 300 400 500 600 700 800 900 1000

Return Period (yr)

Ev

en

t L

os

s / T

SI (%

)

EQ-Zone

EQ-ZipCode

EQ-Policy

12

ZONE11

ZONE10

ZONE9

ZONE6

ZONE5

ZONE12

ZONE4

ZONE1.1

ZONE3

ZONE8

ZONE2

ZONE7

ZONE1

ZONE11

ZONE10

ZONE9

ZONE6

ZONE5

ZONE12ZONE4

ZONE1.1

ZONE3

ZONE8

ZONE2

ZONE7

ZONE1

TSI (Million)

53,1 - 291

292 - 1,130

1,140 - 4,060

4,070 - 10,300

10,400 - 19,900

Policy

Taiwan

TREIF-400 Year

New Zealand

2000 Year

Turkey

TCIP-150 Year

Traditional Reinsurance

Cover

250 Year

USA

CEA-520 Year

New Zealand-EQC

Wellington fault Mw7.5

(1/600 Year)

地震與颱風洪水風險（38.5億 xs 1.5億）

颱風洪水風險（0.5億 xs 1億）

地震風險（60億 xs 40億）

自留（1億）

PML Curve (Loss Exceeding Prob.)

Page:


13

Major Output of Cat-Model- AAL(Average Annual

Loss) & Application (Pricing)

i i

i

AAL L i

iLi iCVL )1( 22

Event

ID

Annual

Occurrence Rate

#0001 0.00001

#....

#9998 0.00020

#.... 0.00065

Mean

of Event Loss

CV

of Event Loss

11.2 bn 0.35

5.8 bn 0.42

0.5 bn 0.93

iLi iLCV

Premium = AAL + Risk Load Factor* σ + Expense + Profit

Page:


14

Exposure Module Store and provide the information of exposure( risk type, risk loca-tion, value, policy conditions)

Event Module

Generate a series of possible typhoon events with full spectrum to the target region(e.g. Western North Pacific or Korea)

Hazard Module

Calculate wind speed of interested sites, based on typhoon’s parameters (track, central pressure, translation speed) & site conditions (terrain, land cover).

Vulnerability Module

Calculate damage ratio of interested target based on wind speed at site.

Financial Module

Calculate possible losses based on different financial perspective, e.g. ground up loss, insurance loss (event losses , loss exceeding probabilities, annual average loss).

The Framework of Korean Typhoon-Wind Model For Crop

Page:


Validation- Typhoon Tracking Model (Historical vs. Model)

Event Module Hazard Module Exposure Module Vulnerability

Module

Financial

Module

Historical (1,052) Historical- Typhoon Tracks Model- Typhoon Tracks

Warm

Season

Cold

Season

Page:


Validation- Typhoon Tracking Model (Historical vs. Model)


Module

Financial

Module

Historical (1,052) Historical- Typhoon Tracks Model- Typhoon Tracks

Typhoon

tracks

made landfall

in Korea

Typhoon

tracks

pass through

Korea buffer

100km

Page:


Gradient Wind Profile Model

17

Hurricane Wind profile proposed by Willoughby(2006) was adopted to simulate the gradient wind speed profile of Typhoon in TRM’s Typhoon model.


Module

Financial

Module

Wind Speed=0 Maximum Wind Speed (Holland, 2010)

Rmax: Radius of Maximum Wind (Vickery, 2006)

Page:


Hazard Module of Typhoon Model for Korea

18

Event

Module

Hazard

Module

Typhoon parameters: • Track(Time, Longitude, Latitude) • Head Direction • Translation Speed • Central pressure

Wind Speed

Profile model

Surface

Roughness

Orography

Roughness

Gradient Wind Distribution

Surface Wind (Land cover, Terrain)

Two Layer Model

of the Planetary

Boundary Layer


Module

Financial

Module

Page:


Validation- Wind Field – Historical vs. Simulated (1/3)

Simulated Grid Wind Speed

(500x500m) Historical Simulated

Interpolated by

the Recorded Wind Speed of Stations

Interpolated by

the Simulated Wind Speed of Stations

2010 Typhoon Kompasu

Simulated Wind Speed of Grids


Module

Financial

Module

Page:


Validation- Wind Field – Historical vs. Simulated (2/3)

Simulated Grid Wind Speed

(500x500m) Historical Simulated

Interpolated by

the Recorded Wind Speed of Stations

Interpolated by

the Simulated Wind Speed of Stations

2012 Typhoon Sanba

Simulated Wind Speed of Grids


Module

Financial

Module

Page:


Current exposure distribution for different

resolution level

21

Apple

Pear

Zone Prefecture Dong Policy


Module Financial Module

Page:


Disaggregate the rough aggregated

exposure data to get more accurate results

22

City

Town

Exposure resolution

Zone

Province

Policy

Detail

Value -Grid 500m× 500m

By Coordinate

Rough

Prefecture

Dong

By detail policy

data distribution or

Land cover data


Module

Financial

Module

Prefecture Dong Zone

Page:


Build Vulnerability Curve (apple & pear )-

Relationship between Wind Speed & Loss

23

Damage Ratio vs. Wind speed Claim Data

Event

Time

Location

Loss

Meteorological data

Time

Location

Wind Speed

#of Claim data(2009-2014)

Pear – 42,633

Apple- 13,613

Wind Speed

Loss

Historical Data


Module

Financial

Module

Page:


Fragility Function of PEAR & APPLE- Beta

Distribution


Module

Financial

Module

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0 2 4 6 8 10 12 14 16

Dam

age

Rat

io M

ean

Beaufort Wind Scale

Pear Historical Damage Ratio Mean

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Dam

age

Rat

io M

ean

Beaufort Wind Scale

Pear Damage Ratio Mean

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0 2 4 6 8 10 12 14 16

Dam

age

Ratio M

ea

n

Beaufort Wind Scale

Apple Historical Mean Damage Ratio

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Dam

age

Rat

io M

ean

Beaufort Wind Scale

Apple Mean Damage Ratio

Page:


Validation- Portfolio Loss Distribution (2010 Kompasu)

2010 Exposure

2010 Exposure

Historical Apple Loss

Historical Pear Loss

Model Apple Los

Model Pear Loss

Date:2016/04/17

COV = 0.87

COV = 0.96


Module Financial Module

Page:


Outlines




CAT Model


Insurance Fund) & Cat-Model

Q & A

26

Page:


27

Money IN Money OUT

Loss & Loss Expense

Risk Financing Cost

Operating Expense

Profit

Premium

Post event Assessments

Investment Income

Balance

Concept of “Money In = Money Out” for Ratemaking

Page:


28

Money IN Money OUT

Pure

Premium

Loss & Loss

expense

Balance

CAT Model

Projected

Portfolio

CAT Model

Portfolio AAL or PML

AALs of different type

of standard risk at different Geo Unit

Projected

Portfolio

Ratemaking – Using Catastrophe Risk Model

Page:


The Flow of Catastrophe Ratemaking

29

Define Risk Factor

(Building Type、

Height、Built Year…..)

Define basic Territory

Level (County, Town,

Village)

Calculate the risk for

each type of risk in each

basic territory unit by

Cat-Model

Decide the Zone based

on the risk of each basic

territory (e.g. Natural

break, 3 territories)

Calculating Zone Rate

(Consider the weighted

AAL of each basic

territory unit )

Forecast portfolio Loss

parameters(AAL, PML) by

Cat-Model

Balance between

portfolio loss cost and

premium

=> Off Balance Factor

Adjust the rate by Off

Balance Factor

=> Rate plan

Discussion and

Modification

Page:


Ratemaking Results of a Hypothetical Sample

30

Territory Rate TSI

(NT$ billion) # of Town

(Basic territory)

1 0.24 9,680 220

2 1.81 1,820 75

3 4.12 390 51

(for content only)

ALAE=0.03*AAL; Risk Load Factor=0.15

ALAE: Allocated Loss Adjusted Expense

Page:


Outlines




CAT Model

Brief Introduction of TREIF (Taiwan Residential

Earthquake Insurance Fund)

Conclusions

31

Page:


Origins and Development of TREIF

On September 21, 1999, a magnitude 7.3 earthquake, known as

the "Chi-Chi earthquake" or "921 earthquake," struck central

Taiwan.

The earthquake prompted the government to set up an earthquake

insurance pool system and build consensus to strengthen the

earthquake insurance mechanism.

At the end of 1999, the competent authority also introduced

amendments to Article 138-1 of the Insurance Law to include

provisions on underwriting residential earthquake insurance by the

insurers and establishment of a mechanism for assuming

earthquake risk.

Effective from April 1, 2002, all residential fire insurance policies

must automatically include basic coverage for residential

earthquake risk. 32

Page:


Coverage of Residential Earthquake Basic Insurance

Coverage

Policies provide coverage for actual total loss or constructive total loss (damage ratio >= 50%) of residential building due to fire, explosion, landslide, land subsidence, land movement, land fissure, land rupture, or tsunami, sea surge and flood caused by an earthquake.

Premium

Origin premium in 2002 – The annual flat premium is NT$1,459 based on an insured amount of NT$1.2 million and the contingent living expense NT$180,00 .

From January 1, 2012-Tthe annual flat premium for the insurance was reduced to NT$1,350 based on an insured amount of NT$1.5 million and the contingent living expense NT$200,000

33

Page:


Risk Spreading Mechanism of TREIF

34

Tier 1: NT$3 billion, undertaken by the Co-insurance Pool.

Tier 2: NT$67 billion, undertaken by the TREIF and transferred to various risk takers.

NT$70 billion

Insured Loss with 400

years Return Period

Each tier of risk limit is calculated

on the basis of the insurance loss

for each earthquake incident. If

the total amount of the insured

loss from the same earthquake

incident exceeds the total amount

of Risk Spreading Mechanism, the

claim amount paid to the

policyholder shall be on a pro rata

basis proportionally reduced.

Page:


Coverage of TREIF

As of June 30 2016, the cumulative liability amount for the residential earthquake insurance system was NT$4.5 trillion (NT$4,541,319,288,217).

There were 2,757,462 policies in force, representing a take-up rate of 32.79% (based on a total of 8,409,079 households in Taiwan).

35

Page:


Scheme Design of TREIF–Using Cat-Model

36

Cat Model

Projected Residentila

Portfolio

Co-Insurance

NT$??? Billion

NT$??? Billion

NT$70 Billion

NT$??? Billion

NT$??? Billion

Government

Fund

Fund

Reinsurance market or Capital

Market

Loss Exceeding Prob.-PML

Curve

Annual Average

Loss (AAL) & std. dev

Liability Limit

Reinsurance arrangement &

rate

Premium Allocation P

rem

ium

Liability(NT$700bn) Premium(NT$1350

Page:


Income determines catastrophe class

38 Source: Munich Re

The classification of a natural catastrophe depends on where it occurs. If the

World Bank attributes a country to a low-income class (IC), the highest

catastrophe level is already reached with losses of US$ 100 million or more. In

the case of rich countries, the value needs to be 30 times greater. The number

of victims also plays a decisive role.

Page:


39

Sources: Munich Re NatCatSERVICE, World Bank

Page:


Total Sum Insured (TSI) of TY/FL Insurance in

Taiwan

40

Typhoon Nari (2001)

31 Times (2001 vs. 2012)

Page:


Gross Written Premium(GWP) of TY/FL Insurance in

Taiwan

41

NT$3.2 billion

Page:


Overall Rate of TY/FL Insurance

42

The premium rate of Typhoon/flood insurance

in Taiwan was decreased year by year. It’s

caused by the vicious competition between the

property insurance companies.

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