Impact Forecasting, the catastrophe model development center of excellence at Aon Benfield, has launched two new models: an earthquake model for East Africa and a new flood scenario-based model for Mexico reinsurers.
East Africa Model
Aon explained that “areas of Kenya, Tanzania and Uganda are seismically active and prone to earthquakes due to their position in the East African rift system. The region is prone to earthquakes as the rift system has two tectonic plates which are separating and diverging.
“There have been a number of recent earthquakes (Lake Tanganyika, M6.8 in 2005 and Arusha, M6.0 in 2007) which have affected the region. Similar events could more strongly affect Kampala, Nairobi and other major cities, which would have implications for the insurance and reinsurance markets.”
The model was developed “using the latest earthquake data from local and international experts, including the University of Pretoria Natural Hazard Centre Africa. To assess the impact of the hazard against the building resilience, the model analyses over 500,000 events against three occupancies (residential, commercial and industrial) and 24 structural types including three height and age categories. Portfolios can be modeled using CRESTA and State administrative levels.”
Key benefits for insurers and reinsurers underwriting business in the region include giving them the “ability to model loss to both property and life to in turn shape reinsurance buying,” and for “underwriting purposes of large commercial and industrial risks.”
Chris Ewing, catastrophe model developer at Impact Forecasting, described the East Africa earthquake model as “an important addition to Impact Forecasting’s African Earthquake platform, which also includes South Africa and the Maghreb region. Impact Forecasting is committed to supporting our clients and catalyzing their growth in the right direction, with the right tools in regions where no other modeling solutions exist.”
Mexico Flood Model
Aon said the newly launched flood scenario-based model for Mexico aims to “to quantify financial losses caused by river flooding.” It notes that “flooding in Mexico over the last two decades has caused human and financial losses across the entire country, with severe events in 1993, 1998, 1999, 2005, 2007 or 2010. As such, flood in Mexico is considered to be one of the most significant natural perils, alongside earthquake and hurricane.”
The new model will enable loss estimates for these events to be “calculated to gauge the financial impact of their potential reoccurrence. Equally, scenarios can be generated for possible future events, for example, based on maximum possible magnitudes of a flood.
“The hazard part of the catastrophe model is based on an event footprint that outlines the extent of the flood. This enables insurers to obtain a more realistic estimate of their specific exposure.”
Michael Hughes, CEO of Aon Benfield in Latin America, said: “As demand for catastrophe insurance and reinsurance increases in Latin America, catastrophe models need to develop alongside. In comparison to models in global peak catastrophe zones, the models in Latin America face the challenges of fewer historical events, reduced underlying data and less development resources. In response, Impact Forecasting is stepping up by increasing its focus on models for the region – notably for its flood, earthquake and tsunami risks.”
Vaclav Rara, flood model developer at Impact Forecasting, added: “Floods in Latin America have recently caused widespread damage. Therefore Impact Forecasting’s main goal is to bring more understanding to the insurance industry of this peril and help insurers to better manage their risk using the latest technology and hazard data.”
Aon explained that the “new model is part of a suite of new scenario models to generate loss estimates for specific historic events. It is integrated in ELEMENTS – Impact Forecasting’s proprietary loss calculation platform – which allows the application of insurance conditions at varying levels and also quantifies different sources of uncertainty.”
Source: Aon Benfield/Impact Forecasting