Monthly Archives: June 2019

SiteIQ and the Art of Empowerment

This is a taster of an article published in the latest edition of EXPOSURE magazine featuring the new RMS application – SiteIQTM. For the full article click here or visit the EXPOSURE website.

EXPOSURE magazine recently looked at the challenges that underwriters and agents at coverholders currently face, to get comprehensive risk data when evaluating an individual location.

When evaluating single risks, underwriters and coverholders typically have to request exposure analytics from their portfolio managers and brokers, or gather their own supplementary risk data from a range of external resources, whether it is from Catastrophe Risk Evaluation and Standardizing Target Accumulations (CRESTA) zones, through to lookups on Google Maps. But all this takes valuable time, requires multiple user licenses and can generate information that is inconsistent with the underlying modeling data at the portfolio level.

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Ebola Epidemic: Confirmed Cases in Uganda

Situation

It has been reported that the current Ebola Virus Disease (EVD) epidemic, which has caused over 1,300 confirmed deaths in the Democratic Republic of the Congo (DRC) since its onset in August 2018, has now also caused at least one confirmed death in neighbouring Uganda.

The number of confirmed deaths has been steadily increasing since the onset of the outbreak, though since March there has been a notable increase in the reported number of deaths per week. A recent trend shows a slight decrease from the peak, with the current situation report recording 50 deaths among confirmed EVD cases in the past week (Figure 1 below).

FIGURE 1. REPORTED CONFIRMED EVD DEATHS (PER WEEK) – SHOWING REPORTED WEEKLY DATA, AND FOR A RANGE OF MOVING TIME-AVERAGES (SOURCE: WHO).

The situation in DRC is complex; response efforts have been challenged by attacks on local health workers. David Gressly, UN Emergency Ebola Response Coordinator (EERC), recently commented on the difficulties faced. “The Ebola response is working in an operating environment of unprecedented complexity for a public health emergency – insecurity and political protests have led to periodic disruptions in our efforts to fight the disease.”

Despite the scale of the epidemic, and the local challenges in managing the outbreak, cases of EVD had until now been contained within the DRC.

It is understood that the first case of EVD in Uganda occurred as a result of a family attending the funeral of a relative in the DRC, where it is believed a five-year old child contracted the virus before returning to Uganda, where health workers identified the illness as EVD. Sadly, the child has now died, and a number of family members have also contracted EVD and are being treated.

Response

The 2014-2016 EVD epidemic resulted in more than 10,000 deaths across Sierra Leone, Liberia and Guinea. Since then, there have been two major advances in planned responses to similar outbreaks.

  • The epidemic accelerated efforts to search for an effective vaccine – funds were mobilized, and clinical trials were launched and completed in record time. Among more than seven candidate vaccines that have been tested, a “Recombinant Vesicular Stomatitis Virus Ebola Vaccine” (rVSV-ZEBOV) provided the most promising results with reported efficacy of 100 percent (95 percent confidence interval of 68.9 to 100 percent) among 2,119 vaccinated contacts in Guinea.
  • The World Bank developed the Pandemic Emergency Financing Facility (PEF) – a quick-disbursing financing mechanism that provides a surge of funds to enable a rapid and effective response to a large-scale disease outbreak. The PEF combines a ‘cash window’ with an ‘insurance window’ to provide funding to support outbreak management (Figure 2). A portion of the finance for the insurance window is sourced from the capital markets through a parametric catastrophe bond – the IBRD notes

FIGURE 2. WORLD BANK PANDEMIC EMERGENCY FINANCING FACILITY (PEF). AN OVERVIEW OF THE STRUCTURE, INCLUDING CASH WINDOW AND INSURANCE WINDOW COMPONENTS (SOURCE: WB).

Since the onset of the epidemic, a total of US$32 million has already been disbursed from the cash window, which is the flexible component of the PEF, where funds are disbursed based on agreement by a steering body.

There are more stringent rules attached to the insurance window – a set of predetermined criteria must be satisfied to determine if funds are released from the catastrophe bond. This structure is called a parametric trigger mechanism, it is required because the funds which support the insurance window are sourced from (re)insurance and capital markets, so a clear and pre-agreed objective process is required.

Due to the complex nature of epidemics, the parametric trigger mechanism has a range of dependent criteria which must all be satisfied before a payout can be authorized (Figure 3 below).

FIGURE 3. SUMMARY OF CATASTROPHE BOND TRIGGER CRITERIA (SOURCE: RMS VIA PUBLIC OFFERING MATERIALS).

Based on the current reported number of confirmed deaths, the structure would appear poised to make an initial payout, which would supply the PEF funds for disbursement to local governments and responding agencies.

However, there are additional criteria which must be met before this can happen. These criteria relate to the growth rate of the outbreak, and the geographic distribution of confirmed deaths. RMS does not have access to the detailed calculation procedures in the Calculation Agent Agreement. But according to preliminary RMS calculations, which are based only on publicly available WHO data, and the calculation procedure outlined in the cat bond offering materials which are made public on the World Bank data portal, the growth rate criteria could have been met.

The spread of the outbreak to Uganda therefore marks a notable incident with respect to the funds that may become available to support local response efforts. If the outbreak is not contained, and 20 confirmed EVD deaths occur in Uganda, then, subject to independent review and confirmation by the calculation agent, the bond may make a first payout to the PEF.

A Complex Issue

This type of structure, where multi-million dollar transfers are made based on reported deaths, growth rate and geographic criteria, obviously raises questions among those who view it for the first time.

However, it is important to recognize that the pre-agreed structure has been designed to explicitly address this type of complex crisis. The cash window of the PEF exists so that the facility has flexibility in its response, to ensure that some funds are available to assist with “severe single-country outbreaks”. The PEF insurance window exists to provide financial support for severe outbreaks which impact across multiple countries.

It is also important to recognize that, as with any complex crisis, finance is only one part of the solution. The local response systems are what will ultimately manage the epidemic. If the local responders are sufficiently supported with resources, including vaccines, medical expertise, and appropriate funding, then hopefully this crisis can be ended sooner.

 

The Disappearing Tokyo Risk Audit

Without the ability to measure, how do we know if we are making progress?

In December 2012, in preparation for the renewal of the UN Millennium Development Goals, I wrote a report for the U.K. Government Department for International Development (DFID) advocating that catastrophe models should be used to measure progress in disaster risk reduction. I suggested goals could be set to target a 50 percent reduction in expected casualties and a 20 percent reduction in normalized economic losses, over the period of a decade, based on the output of a catastrophe model.

Two years later, the seven targets agreed at the UN meeting on Disaster Risk Reduction, held on March 14–18, 2015, in Sendai, Japan – were a disappointment. The first two targets for “Disaster Mortality” and “Affected People” would simply compare data from 2020-2030 with 2005-2015. The third target was to “reduce direct disaster economic loss in relation to global GDP by 2030”. Yet we know, especially for casualties – even at a global level, a decade is not enough to define a stable mean. For cities and countries, comparing two decades of data will generate spurious conclusions.

And so, it was a relief to see that only two weeks later, the Japanese and Tokyo city governments announced they had set themselves the challenge of halving earthquake casualties over a decade, measured by modeling a hypothetical event based on the M7 1855 Edo earthquake under Tokyo. I referenced this announcement and quoted it widely in presentations, to highlight that risk modeling had been embraced by the country with the most advanced policies for disaster risk reduction.

Over the last two years, I started searching for some update on this initiative. What kind of progress in risk reduction was being achieved, whether the targets for Tokyo would be met? And I found my original links had all stopped connecting. Perhaps in my enthusiasm I had dreamt it?

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May Tornadoes Leave U.S. in a Whirlwind

Late May 2019 was a startlingly active period for severe convective storms (SCS) in the U.S., even after considering that May is typically one of the most active months of the year. Until about halfway through the month, the number of tornadoes being reported was around average, but after a major outbreak starting in mid-May this number shot up, bringing the year-to-date total to 1,017 tornado reports. This count is only surpassed by the extremely active years of 2008 and 2011 (Figure 1).

This year’s late May outbreak was also unusually long: by the end of Wednesday, May 29, at least eight tornadoes had been experienced each day across a record-breaking 13 consecutive days, according to preliminary data from the National Weather Service (NWS). The previous record was set in 1980, after 11 consecutive days with at least eight tornadoes.

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Calm or Chaotic? Looking Ahead at the 2019 North Atlantic Hurricane Season

The 2019 North Atlantic hurricane season officially got underway on Saturday, June 1, and marked the start of a six-month period that runs right through to November 30. Blatantly ignoring this official start, the North Atlantic has already produced its first named storm of 2019. On May 20, Subtropical Storm Andrea formed over open water in the western Atlantic, several hundred miles south of Bermuda. It was a relatively weak and short-lived storm, lasting for less than a day before dissipating. This is the fifth consecutive year that a storm had formed ahead of the official start date of the hurricane season.

As I shared in a previous blog, storms can form at any time of year, but it is important to remember that there is no historical relationship between the date of the first named storm and the overall seasonal hurricane activity, so the early start to 2019 does not provide us with any clues as to how the season might pan out.

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Impact Trek: Living (and Thriving) in Areas Exposed to Multiple Perils

In March this year, I joined a team of six RMS employees and three clients travelling to Manila in the Philippines on the annual RMS Impact Trek, as part of an ongoing partnership with Build Change. RMS and Build Change share the aim of increasing resiliency and reducing the impact of disasters, especially in the communities that are most vulnerable to their effects. The Philippines is one of the most disaster-prone countries in the world; its position on both the Pacific Ring of Fire and within the western North Pacific tropical cyclone basin means the country is at risk from both earthquakes and typhoons.

Previous Impact Treks had taken participants to Haiti and Nepal – countries which were at the time recovering from the impacts of catastrophic earthquakes. This year was different, in that Manila has not experienced a recent disaster, and the Trek focused on pre-disaster measures that can be taken to increase resiliency and prepare for the next big event when it inevitably occurs.

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