Comparing the protection offered by different insurance · 2016. 5. 18. · CONFIDENTIAL ©2016 AIR...
Transcript of Comparing the protection offered by different insurance · 2016. 5. 18. · CONFIDENTIAL ©2016 AIR...
1CONFIDENTIAL ©2016 AIR WORLDWIDE
Comparing the protection
offered by different insurance
pools worldwide
Greg Talbot
Business Development Manager
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- Insure the World
- Natural Catastrophe Pools
- Analysis
Agenda
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Insure the World
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AIR’s Models Cover Much of the Insured World but Economic Losses Are Much Higher
Economic AAL ~$307bnInsured AAL ~$74bn
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Reinsurance Capacity is Currently Large Enough to Cover the Currently Insured World
AIR’s Modelled Aggregate Insured Loss:• 250-year ~ USD 305bn
• 1,000-year ~ USD 400bn
“Reinsurance Capital” = USD 565bn*
“Global Property Cat Reinsurance Capacity” = USD 400bn**
“Dedicated Global Reinsurance Capital” = USD 425bn***
Sources: * AonBenfield Q1 2016
** Guy Carpenter July 2015
*** Willis Re mid-range Sept. 2015
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But How Much Would it Cost to “Insure the World” if All of it Were Insured?
0
200
400
600
800
1.000
1.200
1.400
1.600
AAL 520%
1010%
205%
502%
1001%
2000.5%
2500.4%
5000.2%
Lo
sses
(US
D B
illi
on
s)
Return Period Exceedance Probability
Occurrence
Aggregate
Layer from 1% GDP to 1.5% GDP
Premium ~$8.2bn ???
Attachment Prob.
1.62%
Exhaustion Prob.
0.43%
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Is there the expectation that the Government will fill the gap?
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Role of U.S. Federal Government in Covering Disaster Losses(proportion of total loss paid by taxpayers)
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Natural Catastrophe Pools
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What’s in a name?
Sometimes called Natural Catastrophe ((Re)Insurance) Pools/Schemes…
However their goal is universal:
- To guarantee affordable and stable insurance premiums to a broader
mass of people
- To provide immediate post-disaster financing proportionate to the
incurred loss
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What is the Problem?
• Some countries are heavily exposed to natural disasters (Windstorm, Earthquake, etc.)
• Their limited size and borrowing capacity restrict their resilience to disasters
• Heavy dependence on post disaster financing and aid from international donors
• Access to insurance is limited due to size of placement and high transaction costs
• Lack of historical information on intensity of natural disasters in some regions (Pacific & Indian Ocean)
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Concepts of Risk Pooling – Technical Insurance Premium
Annual Expected Loss Annual Expected Loss
Operating CostsOperating Costs
Cost of Capital
(reserves and risk
transfer)
Cost of Capital
(reserves and risk
transfer)
Underlying risk
unchanged
Economies of
scale e.g. fixed
costs
1 - Lower R/I costs due
to better structured and
diversified portfolio
2 -Joint reserves to
retain 1st aggregate
loss
BEFORE AFTER
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The Value Proposition
• Pooling risks across a wide area provides better spread and more efficient use of capital
• Pools create the spread of risk and critical mass to make catastrophic risk insurance affordable
and effective
- Would making insurance compulsory avoid anti-selection and overcome a lack of risk awareness?
• Provide a more efficient platform to transfer catastrophic risk to international reinsurance or
capital markets (e.g. PAID, TCIP, TREIP, EQC)
• Provides a mechanism to encourage risk mitigation and safer construction practices
• Provides the platform to increase risk awareness
• Facilitates the build up catastrophe reserves
• Facilitates research and investment in the modelling of catastrophe risk
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Recent Press Coverage of Natural Catastrophe Pools
Reactions, 26th April 2016
Business Mirror, 30th April 2016
April 14th 2016
Artemis, 2nd May 2016
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Countries with Active Nat Cat Schemes
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Focus of Today
EQC – New
Zealand
PAID – Romania
TCIP – Turkey
TREIP - Taiwan
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EQC
Rūaumoko – God of EQ,
Volcanoes and seasons
Set up in 1945 in response to the Wairarapa EQ in 1944
EQC Act 1993 has 4 roles:
- i) Manage the Natural Disaster Fund
- ii) Educate about disaster preparedness
- iii) Conduct research into detection and understanding of geological hazards
- iv) Settle claims
If a homeowner has home and contents cover, they automatically
have EQCover
EQC usually pays the first NZ$ 100k for a home and up to NZ$ 20k
for contents (land damage is also covered)
Damage above this will be paid by a private insurer
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TCIP – “Earthquake will pass and life will go on”
Founded in 2000 after the 1999 Izmit Earthquake.
In 1999 there was only about 2% EQ penetration outside of Istanbul
Maximum sum insured of TL 150k
Commercial and Industrial buildings
require private insurance
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TCIP – “Earthquake will pass and life will go on”
Key difference is that premium for Compulsory Earthquake Insurance (CEI) is Tariff based:
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PAID
Established in 2009, as a joint effort of 12 insurance companies
Perils covered are earthquake, floods and landslides
Goals include: to provide a product that is simple and accessible to all homeowners
To insure prompt payment in the event of a catastrophic loss
Build a solid financial reserve to protect against natural phenomena
To promote education and improve protection measures
20 EUR premium/20,000 EUR sum insured for wood, concrete and brick houses
10 EUR premium/10,000 EUR sum insured for adobe houses
Unlike other pools, PAID was established pre-event
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PAD vs. Facultative Policies
-
200.000
400.000
600.000
800.000
1.000.000
1.200.000
1.400.000
1.600.000
1.800.000
Total policies in force
Source: paidromania.ro
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TREIP
The TREIP (Taiwan Residential Earthquake Insurance Program) was established in
2002 following the 1999 Chi-chi Earthquake
Prior to the Chi-chi EQ (economic loss of $12bn) fewer than 1% of residents were insured
The pool was designed to diversify risk through local co-insurance, a non-profit fund, reinsurance
and Government funds
New residential fire policies are issued on an annual basis to automatically cover earthquake risk
A maximum insured of TWD$1.2m (US$37,730), with TWD$180k (US$5.5k) for living expenses.
The annual flat premium per household is TWD$1,459 (US$46)
Event trigger has to be Total Loss or Constructive Total Loss
Take-up of about 30%
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Comparison of four countries
New Zealand
Population – 4.6m
Area – 103,000sq
mi
Romania
Population – 19.5m
Area – 92,000 sq mi
Taiwan
Population – 23.4m
Area – 14,000 sq mi
Turkey
Population – 79.4m
Area – 302,000 sq mi
Residential
Residential
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EQ Pool Comparison
Country Coverage Limit
Amount
Deductible Premium
PAID Buildings €20k/€10k First loss €20/€10
TCIP Buildings €45K 2% Variable
TREIP Buildings,
contents,
living
expenses
€32K/€5K Co-insurance
Pool
€39
EQC Buildings,
Contents,
land
€60k/€12k First loss Included with
other policy
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Analysis
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EQ Pools were run in our software
Using AIR software, we ran our Industry Exposure database for each country and each EQ pool,
in the same currency €…
The results shown are Aggregate losses, i.e. they are the sum of all losses in the year (as
opposed to Occurrence losses, which just show the highest loss in any year)
A reminder that the return periods shown correspond to Exceedance Probabilities, so for
example a 100 year return period corresponds to a 1% chance of exceeding this level of loss.
Other key return periods: 200 years = 0.5%
250 years = 0.4%
500 years = 0.2%
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Country Comparison – EQ only – All LOB
0
10.000
20.000
30.000
40.000
50.000
AAL 10yrs
25yrs
50yrs
100yrs
200yrs
250yrs
500yrs
EUR (M)
Return Period
Country Comparison EQ Only - All LOB
Romania
NZ
Taiwan
Turkey
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Country Comparison – EQ only – Residential Only
0
5.000
10.000
15.000
20.000
25.000
AAL 10yrs
25yrs
50yrs
100yrs
200yrs
250yrs
500yrs
EUR (M)
Return Period
Country Comparison EQ Only -Residential Only
Romania
NZ
Taiwan
Turkey40%
45%
50%
55%
60%
65%
70%
75%
80%
AAL 10 yrs 25 yrs 50 yrs 100yrs
200yrs
250yrs
500yrs
Return Period
Proportion of Residential losses to all LOB
Romania
NZ
Taiwan
Turkey
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EQ Pool Losses
0
2.000
4.000
6.000
8.000
10.000
12.000
14.000
AAL 10yrs
25yrs
50yrs
100yrs
200yrs
250yrs
500yrs
EUR (M)
Return Period
EQ Pool Losses
Romania
NZ
Taiwan
Turkey
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Losses Net of EQ Pool
0
2.000
4.000
6.000
8.000
10.000
12.000
AAL 10yrs
25yrs
50yrs
100yrs
200yrs
250yrs
500yrs
EUR (M)
Return Period
Losses Net of EQ Pool
Romania
NZ
Taiwan
Turkey
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Percentage of Losses taken by EQ Pool
0%
20%
40%
60%
80%
100%
AAL 10 yrs 25 yrs 50 yrs 100yrs
200yrs
250yrs
500yrs
Return Period
Percentage of Losses Taken by the Pool
Romania
NZ
Taiwan
Turkey