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Insurers must prepare for Asian ‘Supercats’, warns Aon Benfield

 

Aon Benfield, the world’s premier reinsurance intermediary and capital advisor, is warning insurers in Asia to prepare for future “Supercat” events like those experienced in the USA. A Supercat event is defined as generating an insured market loss of at least USD10 billion and in Asia is most likely to occur in Japan, China and South Korea 

By comparison, the USA will almost certainly continue to rank Number One in terms of Supercat losses for the foreseeable future due to the frequency of major hurricanes alone – such as hurricanes Katrina, Rita, Wilma in 2005 - without even considering earthquake and terrorism-related losses.

 

Aon Benfield research also revealed the following Supercat loss scenarios:

 

- Japanese typhoon is a major Supercat peril due to its severity and frequency. Repeats of typhoons Mireille (1991), Vera (1959) and Nancy (1961) could all produce Supercat insured losses, as could a direct hit of a strong (Saffir-Simpson Category 3) typhoon on Tokyo.

- Continued strong economic growth, coupled with increasing insurance penetration, could result Supercat losses in mainland China in the next decade. A repeat of the 1976 Tangshan magnitude 7.6 earthquake could today cause insured losses ranging up to about USD3 billion. However with 10% growth in both underlying values and insurance penetration per annum this figure could reach USD10 billion if such an event occurred from 2016 onwards. Similar losses could result from a repeat of the 1679 Sanhe-Pinggu magnitude 8 event near Beijing or the 1668 magnitude 8.5 Tancheng event in Shandong.

- Seoul in South Korea experienced damaging earthquakes in AD 89, 1385 and 1518 with magnitudes apparently ranging from 6.5 to 7.5 (Chiu & Kim, 2004). Any major earthquake around magnitude 7 affecting Seoul today would cause a major, perhaps Supercat-sized, insured loss. 

Dr. Will Gardner, head of Aon Benfield Analytics Asia Pacific, said: “The first step is for insurers and regulators, particularly in China and South Korea, to recognise the possibility of Supercat-sized earthquake losses and take action to ensure adequate catastrophe reinsurance protection.”

 

Dr. Nigel Winspear, senior director at Aon Benfield Analytics, added: “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. Some insurers opt to purchase as little catastrophe reinsurance protection as possible to maximise their retained premium.”

 

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About Aon Benfield

As the industry leader in treaty, facultative and capital markets, Aon Benfield is redefining the role of the reinsurance intermediary and capital advisor. Through our unmatched talent and industry-leading proprietary tools and products, we help our clients to redefine success. Aon Benfield offers unbiased capital advice and customized access to more reinsurance and capital markets than anyone else. As a trusted advocate, we provide local reach to the world’s markets, an unparalleled investment in innovative analytics, including catastrophe management, actuarial, and rating agency advisory, and the right professionals to advise clients in making the optimal capital choice for their business. With an international network of more than 80 offices in 50 countries, our worldwide client base is able to access the broadest portfolio of integrated capital solutions and services. Learn more at aonbenfield.com.

 

David Bogg                                                                                                               

Aon Benfield                                                                                                              

t: +44 (0)20 7522 4016                                                                                                

e:david.bogg@aonbenfield.com                 

 

Andrew Wragg

Aon Benfield

t: +44 (0)20 7522 8183

e:andrew.wragg@aonbenfield.com  

 

Alexandra Lewis

Aon Benfield

t: +44 (0)20 7882 0541

e:alexandra.lewis@aonbenfield.com    

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