Monthly Archives: February 2019

U.S. Wildfire: Better Strategies Needed for a Growing Catastrophe Risk

What will the 2019 wildfire season bring across the United States?

Across the United States, around eight and a half million acres burned in 2018, nearly three times the annual average during the 1980s and 1990s. That is the equivalent of the entire state of Maryland burning in one year. Last year’s Camp and Woolsey fires in California burned a total of 245,000 acres – these two fires alone burnt a combined area around three times the size of Detroit, destroyed more than 12,000 structures and killed 80 people.

It is getting hard to argue that the size and ferocity of the most recent wildfires across the U.S. are just anomalies, the evidence just does not support these events as being exceptional anymore.

As California’s then Governor Jerry Brown stated at a press conference as the Camp and Woolsey fires raged, these wildfire events are “… the new abnormal …” and that events may worsen over the next few decades. He added that “… the best science is telling us that dryness, warmth, drought, all those things, they’re going to intensify.”

Continue reading

Addressing the Challenges in Assessing Livestock Insurance Risks

This article was originally published in Insurance Day, click here to view the original article.

Livestock insurance represents a significant part of global agriculture premium. Traditional indemnity insurance products are available, complemented with less common products like parametric index insurance. Managing livestock insurance is a complex business, as livestock mortality is a recurring event.

China is one of the biggest players as the world’s largest livestock producer. In China, livestock insurance premium represents about 25 percent of total Chinese agriculture premium, making livestock risk management a major concern for the insurance industry.

Like China, many countries have improved their contingency plans and established controlled diseases centers to reduce mortality event impacts. In China, major recent disease epidemics include Foot and Mouth Disease (FMD), Porcine Reproductive and Respiratory Syndrome (PRRS), Swine Fever, Avian Influenza and Newcastle disease. Noticeable epidemics since 1995 include SARS in 2003 (poultry), major FMD and PRRS in 2006 and 2007 (pigs), and FMD in 2009 and 2010.

Continue reading

New Zealand Earthquake Risk: It’s All in the Details

Across the global risk management community, we are bombarded by new information every day. As risk professionals we have to prioritize how we give our attention to new information. From an RMS perspective, when we release new model insights, we know there is a need to be concise and boil down huge research projects into just the important details. But there is a concern that the top-level results get taken as a uniform value that can be applied across the board, losing vital nuance.

When RMS released its New Zealand Earthquake High-Definition (HD) model in mid-2016, an important message was that the annual average loss (AAL) had increased by 30 percent. The ground-up, all-lines, countrywide AAL increased 30 percent relative to the previous version of the model released in 2007. An increase in loss came as no surprise after the Canterbury Earthquake Sequence of 2010/11 – see our New Zealand earthquake blogs.

The HD model was launched at two industry seminars in Wellington and Auckland and came with online documentation: some 44 pages of Understanding Changes in Results and 114 pages of model methodology, supplementary materials on our RMS OWL client portal and a team of modelers happy to talk about their work.

Faced with this information, one approach is to note that the New Zealand market is very consolidated so industry figures should be useful guides for actual portfolios. Let’s just use the old model and scale it by 30 percent. “She’ll be right”, as they like to say in New Zealand. But with two models being so different, this scaling-up would not make sense. Why are they so different?

Continue reading

What Are the Technology Drivers of ILS Growth?

On February 1, I had the opportunity to speak at a panel session entitled “Technology as a Driver for ILS Growth” at the Artemis ILS Conference in NYC.  It was a full house, with 350 attendees from across insurance, banking and financial markets. My fellow panelists were Sean Bourgeois, CEO of Tremor Technologies; Yaniv Bertele, Co-founder and CEO of Vesttoo, and Andries Hoekema, Global Head of Insurance for HSBC Global Asset Management. This session was chaired by Tom Johansmeyer, Co-head of PCS Strategy and Development from Verisk Insurance Solutions.

Despite the impact of consecutive years of losses, the insurance-linked securities (ILS) market continues to strengthen and expand to become a significant provider of global reinsurance and risk capital. And as financial instruments become more complex, and competition increases, the ability to successfully adopt new technology will emerge as a differentiator to separate the winners from the losers.

From our panel discussion, we had general agreement on what these technology drivers of ILS growth will be, and we coalesced around five drivers:

Continue reading

Terrorism Risk for California Workers’ Compensation

The terrorism landscape has changed significantly since 9/11. There is a visible shift from large-scale attacks to a growing number of lone wolf attacks. Many believe there has not been a major terrorist event in the United States post 9/11, but one should not overlook the near-misses in the recent past which could have caused massive losses such as the 2016 New York-New Jersey bombings.

The unpredictable and catastrophic nature of terrorism led to the emergence and continued reauthorization of the U.S. Terrorism Risk Insurance Program or TRIPRA, a federal backstop for defined acts of terrorism, which facilitated insurers to continue to provide terrorism coverage after 9/11.

Assessing Workers’ Compensation Risk from Terror Attacks in California

Reflecting this changing landscape, RMS conducted a terrorism risk study for the Workers’ Compensation Insurance Rating Bureau of California (WCIRB). The WCIRB is an unincorporated, private, non-profit association comprised of all companies licensed to transact workers’ compensation insurance in California and has over 400 member companies.

This study has received considerable market recognition, following our previous successful engagement to provide California earthquake risk assessment.

The objective of our study was to estimate California’s workers’ compensation losses to be retained by insurers due to terrorist acts, under TRIPRA for calendar year 2019. Please find a link to the study here.

Continue reading

Townsville in the Trough

Two people died and thousands of properties in the North Queensland coastal city of Townsville (pop. ~168,000) have been flooded, following an unprecedented rainfall event for the region, driven by a very active monsoon trough that is refusing to budge and a slow-moving tropical low dragging moist air down from the equator.

According to the Australian Government Bureau of Meteorology (BoM), Townsville has experienced record rainfall, with 1,153 millimeters (45 inches) – equivalent to a year’s worth of rainfall, falling over a seven-day period up to Monday, February 4.

To add to the city’s problems, on Sunday, February 3, the Ross River Dam at the mouth of Lake Ross, just five miles (eight kilometers) from the center of Townsville, reached 247 percent of its typical capacity, and a record-breaking height of 42.99 meters. With the river running through the city, the dam’s flood gates were opened allowing 1,900 cubic meters of water per second to flow downstream in order to prevent catastrophic dam collapse. Local authorities suggested this could have affected up to 2,000 homes in Townsville. More heavy rain is still forecast for the next few days and while the rainfall rate has eased the event is not over yet.

Continue reading

How Will Insurers Be Affected by Changes in New Zealand EQC Coverage Layers?

Around 98 percent of residential homes in New Zealand have earthquake insurance. This remarkable achievement is due to a unique partnership between the New Zealand government Earthquake Commission (EQC) working together with the insurance industry. From its origins in 1945 as the Earthquake and War Damage Commission – renamed as the EQC in 1993, the Commission is supported by an Act of Parliament which sees the Crown as the insurer of first resort for earthquakes in New Zealand. The EQC provides the first layer of coverage for 1.84 million residential properties across the country, with the private market delivering cover over this initial layer.

The EQC administers the New Zealand Natural Disaster Fund (NDF) which receives monies directly passed on by private insurers, from a flat rate levy imposed on all households who purchase a homeowner insurance policy. The EQC is also responsible for investing the fund and ensuring there is adequate reinsurance cover available.

The NDF has supported the country’s homeowners through a series of damaging events since the start of this decade, providing NZ$100,000 (US$67,332) of buildings and NZ$20,000 (US$13,466) of contents cover for each event. Before the Canterbury earthquakes in 2011-12, the NDF had NZ$6.4 billion (US$4.27 billion). By 2018, including payments for the Kaikoura earthquake in 2016, the NDF had just NZ$287 million (US$195 million) left and was perilously close to the NZ$200 million limit where the government is mandated to top up the fund.

Continue reading