1. Parametric (NatCat) Products
Quelle: Verwendung unter Lizenz von Shutterstock.com
Parametric (NatCat) Products
Andi Vossberg
4th October 2018

2. Agenda
What is a parametric trigger and how does a parametric trigger product work?
Potential buyers of parametric trigger products

3. What is a parametric trigger and how does a parametric trigger product work?
Basics
„Smart trigger“
„Pay now, argue later-policies“
traditional indemnity (re)insurance: parametric (re)insurance: covering a policyholder's actual losses pays out in response to defined triggers
Parametric solutions are increasingly being deployed in the public sector and developing markets, as well as by corporate clients

4. What is a parametric trigger and how does a parametric trigger product work?
Advantages / Motivation ?
Quantification of traditional exposure is time-consuming and expensive
Quick post-event liquidity for rapid repair programmes
Parametric solutions can also cover risks which are excluded from traditional insurance
Coverage of secondary losses (e.g., disruption of services, clean-up costs, overtime expenses, etc.)
An alternative/add-on to traditional products, not a substitute!!

5. What is a parametric trigger and how does a parametric trigger product work?
Example of a parametric product

6. Parametric trigger
 “Cat(astrophe) in a box”

7. Parametric trigger  “ ”
Basic Principle
Definition of a geographic „box“ (Circle, rectangle, coastline, point …)
Definition of a parametric trigger
Gust, wind speed, magnitude, precipitation,…
Correlating to risk location
Easy data acquisition
Modelling of return periods for a certain event occurring „in the box“
„All kind of losses” can be covered

8. Parametric trigger  “ ”-Peru
Pisco - Peru
Date: August 15, 2007
Magnitude: Mw 7.9
Fault-plane: red oval
Huge damages in the Ica region
Box
Cat-in-a-Box (red rectangle):
Payout is only based on the magnitude and the location of the epicenter (yellow star)
The energy release of an EQ is the same along the fault plane (red and blue oval)
In case of a fault lane towards NW (blue oval) Lima would have suffered huge losses but no payout

9. Covered event payout percentage
How does it work
Pay-out
Epicenter of triggering earthquake has to be located within the box
Moment magnitude of triggering earthquake has to be equal to or exceed 6.1
Payout can be structured uniquely in accordance with clients’ needs and price expectations, e.g. step-wise payout depending on magnitude:
Each payout is provided immediately after receipt of an event notice and the preliminary loss estimate
Threshold
Covered event payout percentage
6.1 Mw
30%
6.5 Mw
60%
7.0 Mw
100%

10. How does it work Proof of loss
Insured has to deliver an ultimate proof of loss within one year
Proof of loss will cover all costs arising from
real and personal property (including improvements and betterments) within the coverage region, including but not limited to property owned, used or intended for use by the client
financial damage due to BI, any soft costs, any extra expenses
Regulator approval to be classified as insurance product

11. Challenges Basis risk /
Lower price correlates with higher basis risk !!  Risk that a policyholder may not recover their true losses from a disaster
Basis risk should be low and well balanced  in general trigger products are not suitable to cover all losses/damages
Payment should be correlated with the degree of damage
Precise definition of the trigger, to avoid anti-selection and “moral hazard”

12. OneQuake Example I: Earthquake near Antalya airport
1. Scenario:
EQ near AYT,
impacting the airport
severely
2. Two circles:
Inner radius: 30km, magnitude: Mw 6.0 (max depth 40km)
Outer radius: 60km, magnitude: Mw 6.7 (max depth 80km)
3. Payout pattern:
Trigger level I: 100%
Trigger level II: 60%
…of limit of US$ 10m
4. Expected annual loss:
0.24%
 Basis for pricing

13. OneQuake Example II: Earthquake Istanbul
1. Scenario:
EQ near Istanbul
2. Two circles:
Inner radius: 30km, magnitude: Mw 6.0 (max depth 40km)
Outer radius: 60km, magnitude: Mw 6.7 (max depth 80km)
3. Payout pattern:
Trigger level I: 100%
Trigger level II: 60%
…of limit of US$ 10m
4. Expected annual loss:
1.52%
 Basis for pricing

14. OneQuake Example II: Earthquake near Istanbul
1. Scenario:
EQ near Istanbul
2. Two circles:
Inner radius: 30km, magnitude: Mw 6.0 (max depth 40km)
Outer radius: 60km, magnitude: Mw 6.7 (max depth 80km)
3. Payout pattern:
Trigger level I: 100%
Trigger level II: 60%
…of limit of US$ 10m
4. Expected annual loss:
1.52%
 Basis for pricing

15. Potential buyers of parametric trigger products
Municipalities/State – to cover infrastructure projects
Banks
Tourist industry
To cover non physical damage losses
To protect deductible …
Where do you see potential for parametric trigger products?

16. Andi Vossberg 4th October 2018
Quelle: Verwendung unter Lizenz von Shutterstock.com
Çok teşekkür ederim
Andi Vossberg
4th October 2018