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Warning of Supercat Events for Asia

Posted on Oct 21, 2010 by Sergio Ulloa ()  | Tags: AON Benfield, Asia, Supercat Events Asia

Aon Benfield, the US-based reinsurance intermediary and capital advisor, asserts that whilst the United States will continue being hit by "Supercat" events - catastrophic events that cause a minimum of US$10 billion (EUR 7.2 billion) damage in insured losses, - insurers should heed its warning that Asian countries may experience such events in the foreseeable future. Based on the increasing property values and insurance penetration in Asian countries such as Japan, South Korea and China, Aon Benfield extrapolates that the damage done by major catastrophic events like ones experienced in the past will happen again, and insurers could be expected to suffer enormous losses. Citing Japan as an example, the potential losses insurers would face today from typhoons of the same magnitude as Mireille (1991), Vera (1959) and Nancy (1961) would most certainly lead to Supercat-level insured losses, more so by a strong typhoon directly hitting the city of Tokyo. The Senior Director at Aon Benfield Analytics, Nigel Winspear, further explained: "Natural perils in Asia do not appear to be increasing in frequency or severity, however market conditions are changing with increasing insurance penetration and higher property values reflecting ongoing economic growth. Property insurance penetration in Asia is generally low and weakest in residential lines but often high in commercial and industrial lines." This was followed by a warning to insurers in relation to their level of preparedness; "Some insurers opt to purchase as little catastrophe reinsurance protection as possible to maximize their retained premium." Bringing the focus back to the relevance to the insurance industry, it is generally estimated that tropical cyclones cause approximately 30 percent of all the global insurance losses. Citing chronologically the damage done in Asia by typhoons, the following events put in perspective the costs associated with this kind of catastrophic events: (Year) Typhoon / Country [ Insured Damage] (1991) Mireille / Japan [ US$7.1 billion (EUR 5 billion) ] (1997) Winnie / China (1999) Bart / Japan [ US$4.2 billion (EUR 3 billion) ] (2000) Bilis / Taiwan (2001) Chebi / China (2004) Rananim / China (2006) Bilis / China (2006) Durian (Reming) / Vietnam (Philippines) (2006) Saomai / China (2006) Shanshan / Japan [ US$1 billion (EUR 714.3 million) ] (2007) Sepat / Taiwan (2007) Krosa / Taiwan (2008) Kalmaegi / Taiwan (2008) Fung Wong / Taiwan (2008) Sinlaku / Taiwan (2008) Jangmi / Taiwan (2008) Hagiput / Hong Kong In some relatively positive news, AIR Worldwide, the US catastrophe modelling firm, has estimated that the insured losses to onshore properties in the Philippines caused by Typhoon Megi will likely be less than US$150 million (EUR 107.1 million). A statement by AIR stated that their "loss estimates reflect insured damage to property (residential, commercial, industrial), and contents. Crop losses are not included. While the storm was one of the strongest to hit the Philippines in years, the typhoon steered away from the Manila metropolitan area, where the highest concentration of insured properties is located. Overall the penetration of insurance in the Philippines is estimated at only 15 percent." Typhoon Megi is expected to hit land in Southern China in the next few days, possibly on a path with close proximity to Hong Kong. Companies mentioned: AON Benfield Aon is a provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. It is based in the Aon Center in the Chicago Loop area of Chicago, Illinois, United States. Aon bought Benfield in 2008. Aon Benfield Analytics is the industry leader in actuarial, enterprise risk management, catastrophe management, and rating agency advisory. Their track record of innovation and world-class position in analytics, modeling and client-facing technology helps companies to optimize their portfolios. Proprietary tools include ReMetrica, CatPortal, and ExposureView. Also, their Impact Forecasting team develops tools and models that help companies understand financial implications of natural and man-made catastrophes around the world. AIR Worldwide AIR Worldwide (AIR) is the scientific leader and most respected provider of risk modelling software and consulting services. AIR founded the catastrophe modelling industry in 1987 and today models the risk from natural catastrophes and terrorism in more than 50 countries. More than 400 insurance, reinsurance, financial, corporate and government clients rely on AIR software and services for catastrophe risk management, insurance-linked securities, site-specific wind and seismic engineering analyses, agricultural risk management, and property replacement cost valuation. AIR is a wholly-owned subsidiary of Insurance Services Office, Inc. (ISO).
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