Catastrophe Risk Assessment and Management

Catastrophe Risk Assessment and Management

Weiling Chiang

Professor, Department of Civil Engineering,National Central University, ROC

December , 2005Hong Kong

11/23/23

Characteristics of Catastrophe EventCharacteristics of Catastrophe Event

High Uncertainty

Low occurrence rate

Tremendous impact

EarthquakeEarthquake、、Super TyphoonSuper Typhoon、、Terrorism AttackTerrorism AttackCatastropheCatastrophe

History loss data is not enough !!.History loss data is not enough !!. Application of Engineering ModelApplication of Engineering Model

22/23/23

Catastrophe Risk Assessment and ManagementCatastrophe Risk Assessment and Management

Risk InformationRisk Information

Risk ManagementRisk Management

RISKHazar

d

Vulnerability

Exposure

RetentionRetention MitigationMitigation TransferTransfer

Risk = Hazard * Vulnerability * ExposureRisk = Hazard * Vulnerability * Exposure

33/23/23

Source: Munich Re (2002)Topics: Natural Catastrophes 2002

Background-Loss of global natural catastrophe incident (10 Year)

$0

$100

$200

$300

$400

$500

$600

$700

1950-1959 1960-1969 1970-1979 1980-1989 1990-1999

Decade

Tot

al L

oss (

$ B

illio

ns)

Uninsured Economic Losses

Insured Economic Losses

$0

$100

$200

$300

$400

$500

$600

$700

1950-1959 1960-1969 1970-1979 1980-1989 1990-1999

Decade

Tot

al L

oss (

$ B

illio

ns)

Uninsured Economic Losses

Insured Economic Losses

44/23/23

Number of events 1970 - 2004Number of events 1970 - 2004

Source: Swiss Re Sigma Report (2005)

55/23/23

Average 200 sensible earthquakes occurred in Taiwan per year.

BackgroundBackground

ML > 4

66/23/23

BackgroundBackground

• Chi-Chi Earthquake struck Taiwan and caused severe damage – September 21, 1999– More than 13,000 injuries– Destruction of more than 50,000 buildings– US$ 11.5 billion economic loss

77/23/23

Earthquake Loss Model FrameworkEarthquake Loss Model Framework

HazardHazardAnalysisAnalysis

VulnerabilityVulnerabilityAnalysisAnalysis

FinancialFinancialAnalysisAnalysis

StochasticStochasticEventEvent

AssessAssessGroundGroundShakingShaking

NTDNTDQuantify Quantify FinancialFinancial

LossLoss

££$$

Calculate Calculate DamageDamage

Define Define EarthquakeEarthquake

88/23/23

Build Event Loss TableBuild Event Loss Table

Stochastic Event generator

Event Table

Magnitude & Hypocenter

HazardAnalysis procedure

0.35 - 0.400.40 - 0.45

0.30 - 0.35

PGA Distribution

0.10 - 0.15

0.20 - 0.250.25 - 0.30

0.15 - 0.20

Intensity

VulnerabilityAnalysis procedure

….

….

….

….

0.65 Billion

Loss$

….

….

….

….

2.00

CV

iL

Policy conditionsDeductible, Limit

Structural, Content, Structural, Content, and BI Losses and BI Losses

ConsideredConsidered

Portfolio

0

10

20

30

40

50

60

70

0 0.2 0.4 0.6 0.8 1 1.2 1.4

Intensity (PGA)

Dam

age

Rat

io(%

)

Building Type IBuilding Type IIBuilding Type III

iλ

….

….

….

0.002

0.010

Annual Mean Rate

….

….

#0003

#0002

#0001

ID

17,71017,710hypothetical hypothetical earthquake earthquake

eventsevents

99/23/23

Build Exceeding Probability CurveBuild Exceeding Probability Curve

How severe?

Severity Distribution(Loss distribution)

How many times?

ii

λ λ=∑ Poisson Model

(Monte Carlo Simulation)

Aggregate & Occurrence loss

Simulation(Monte Carlo Simulation)

0%

2%

4%

6%

8%

10%

0 500,000 1,000,000 1,500,000

Loss (NT$ millions)

Agg

rega

te E

xcee

danc

e Pr

obab

ility

Ground-Up Loss AEP Gross Loss AEP

….

….

….

….

0.65 Billion

Loss$

….

….

….

….

2.00

CV

….

….

….

0.002

0.010

Annual Mean Rate

….

….

#0003

#0002

#0001

IDiλ iL

1010/23/23

Taiwan Residential Earthquake Insurance Pool - TREIPTaiwan Residential Earthquake Insurance Pool - TREIP

• Became effective starting April 1, 2002– EQECAT provides the analysis

• Standard policy terms– Fixed premium NT$ 1,459 proportion to the policy limit

– The contract limit for direct physical damage is fixed as pre-agreed replacement cost subject to a maximum of NT$ 1.2 million.

– Policies also cover additional NT$ 180,000 for contingent living expense.

– The maximum available under TREIP is NT$ 50 billion per event. If loss exceed this amount, policyholder will receive pro rata payments.

– Binary payout; if a constructive total loss occurs, the policyholder is entitled to a payout of the entire policy limit.

1111/23/23

Risk Sharing Structure of TREIP (NT$)Risk Sharing Structure of TREIP (NT$)50 bn

40 bn

30 bn

20 bn

2 bnDomestic Insurers Private Sector

Foundation Layer

Cat Bond (100 million US$)

First Layer Reinsurance

Second Layer Reinsurance

Government Guarantee

1212/23/23

Data Collection of TREIPData Collection of TREIP

• Residential earthquake insurance was taken effectsince April 1 , 2002.

– The effective insurance policies were 1,244,803. until June 30, 2005

– Liabilities accumulates was 1.6 trillions.– The take-up rate is 17.6%

• TREIP data collection was quite intact, include:

– Policy ID– Zip Code– Building Type– Number of stories– Year Built– Insured amount

1313/23/23

Exposure of TREIP Exposure of TREIP

ZONE112%

ZONE1014%

ZONE910%

ZONE61%

ZONE513%

ZONE121%ZONE4

2%

ZONE1.124%

ZONE34%

ZONE81%

ZONE210%

ZONE74%

ZONE114%

Exposure (%)

0 - 5.05.0 10.010.0 -15.015.0 - 20.020.0 - 25.0

Policies DistributionPolicies Distribution

Exposure

-

50

100

150

200

250

300

350

400

450

Z1 Z1.1 Z2 Z3 Z4 Z5 Z6 Z7 Z8 Z9 Z10 Z11 Z12

Am

ount

($) B

illio

n

1414/23/23

Exceeding Probability Curve of LossExceeding Probability Curve of Loss

0

10

20

30

40

50

60

70

80

90

0 200 400 600 800 1000

Return Period(Year)

Eve

nt Lo

ss (

NT$

Bill

ion)

Loss vs. Return PeriodLoss vs. Return Period

1515/23/23

Exceeding Probabilities of Risk Sharing StructureExceeding Probabilities of Risk Sharing Structure

Domestic Insurers Private Sector

324.7yr (0.31%) 50 bn

229.6 yr (0.43%) 40 bn

189.3 yr (0.53%) 30 bn

149.1yr (0.67%) 20 bn

32.2 yr (3.06%) 2 bn

161.9 yr (0.62%) 23.2 bn

Foundation Layer

Cat Bond (100 million US$)

First Layer Reinsurance

Second Layer Reinsurance

Government Guarantee

1616/23/23

Background - Typhoon definitionBackground - Typhoon definition

TaiwanTaiwan Hong KongHong Kong SaffirSaffir--Simpson Scale Simpson Scale (US)(US)

TypeType WindsWinds(Near center)(Near center) TypeType WindsWinds

(Near center)(Near center) TypeType WindsWinds(Near center)(Near center)

Slight Slight TyphoonTyphoon 62~117 km/hr62~117 km/hr Tropical Tropical

DepressionDepression 63 km/hr63 km/hr Category 1Category 1 118118--152 km/hr152 km/hr

Moderate Moderate TyphoonTyphoon 117~183 km/hr117~183 km/hr Tropical Tropical

StormStorm 6363--87 km/hr87 km/hr Category 2Category 2 153153--176 km/hr176 km/hr

Violent Violent TyphoonTyphoon

183 km/hr 183 km/hr aboveabove

Violent Violent Tropical Tropical

StormStorm8888--117 km/hr117 km/hr Category 3Category 3 177177--207 km/hr207 km/hr

TyphoonTyphoon 117 km/hr 117 km/hr aboveabove Category 4Category 4 208208--248 km/hr248 km/hr

Category 5Category 5 249 km/hr above249 km/hr above

1717/23/23

Characteristics of HAITANG TyphoonCharacteristics of HAITANG Typhoon

Max Winds (m/s) 53

Max Winds (mph) 119.25

TYPE (TW) Violent Typhoon

TYPE (US) Category 3

Data from Central Weather Bureau

1818/23/23

Statistics of Typhoon trackStatistics of Typhoon track

Track 1 : 27%

Track 2 : 13%

Track 3 : 32%

Track 4 : 12%

Track 5 : 6%

Track 6 : 7%

Track 7 : 4%

1919/23/23

Basin23

Basin2

Basin15

Basin13

Basin19

Basin16

Basin26

Basin6

Basin18

Basin30

Basin11

Basin21

Basin9

Basin3

Basin5

Basin8

Basin33

Basin14

Basin12

Basin25

Basin10

Basin7

Basin20

Basin1

Basin29

Basin24

Basin22

Basin31

Basin27

Basin32

Basin28

Basin4

Basin17

Flood map-Data from the National Science CouncilFlood map-Data from the National Science Council

• There are 33 basins in Taiwan.• The greater part of inundation potential map

for each basin are established in 200 × 200 meter resolution. Only Taipei and part of Tao-Yuan areas are 40 × 40 meter resolution.

• There are 4 levels of rainfall for flood map such as 150,300,450,600(mm).(GIS format)

150 mm 300 mm

450 mm 600 mm

2020/23/23

Build Basin Loss Table (Policy Level)Build Basin Loss Table (Policy Level)

Policy Policy LocationLocation

Basin MapBasin Map

150mm150mm Flood Flood potential mappotential map

300mm300mm Flood Flood potential mappotential map

450mm450mm Flood Flood potential mappotential map

600mm600mm Flood Flood potential mappotential map

Vulnerbility Curve

00.10.20.30.40.50.60.70.80.9

0 1 2 3 4Depth

Da

ma

ge

Ra

tio

(Commercial, Residential, Industrial)(Commercial, Residential, Industrial)

Basin 150MM(Loss, P)

300MM(Loss, P)

450MM(Loss, P)

600MM(Loss, P) Mean Stdv

Basin1 (0.1bn,0.1) (0.2bn,0.3) (0.4bn,0.8) (0.7bn,0.9)

(0.5bn,0.8)

… …

(1.1bn,0.9)

0.6

Basin2 (0.2bn,0.2) (0.3bn,0.5) (0.4bn,0.7)

14.7

10.8

… …

1.3

… … … … … … … … … …

Basin33 (0.3bn,0.1) (0.7bn,0.4) (0.8bn,0.7) 14.9 1.4

GIS ToolGIS Tool

PortfolioPortfolio

Hazard Analysis

Vulnerability Analysis

Policy Conditions

Basin Loss Table

2121/23/23

Basin Loss TableBasin Loss Table

Correlation Matrix TableCorrelation Matrix Table

Build Exceeding Probability CurveBuild Exceeding Probability Curve

(1.1bn,0.9)

… …

(0.5bn,0.8)

(0.7bn,0.9)

600MM(Loss, P)

14.9

… …

10.8

14.7

Mean

1.4(0.8bn,0.7)(0.7bn,0.4)(0.3bn,0.1)Basin33

… …… …… …… …… …

1.3(0.4bn,0.7)(0.3bn,0.5)(0.2bn,0.2)Basin2

0.6(0.4bn,0.8)(0.2bn,0.3)(0.1bn,0.1)Basin1

Stdv450MM(Loss, P)

300MM(Loss, P)

150MM(Loss, P)

Basin

(1.1bn,0.9)

… …

(0.5bn,0.8)

(0.7bn,0.9)

600MM(Loss, P)

14.9

… …

10.8

14.7

Mean

1.4(0.8bn,0.7)(0.7bn,0.4)(0.3bn,0.1)Basin33

… …… …… …… …… …

1.3(0.4bn,0.7)(0.3bn,0.5)(0.2bn,0.2)Basin2

0.6(0.4bn,0.8)(0.2bn,0.3)(0.1bn,0.1)Basin1

Stdv450MM(Loss, P)

300MM(Loss, P)

150MM(Loss, P)

Basin

0

100

200

300

400

500

600

700

800

0 200 400 600 800 1000

Return period (Years)

Eve

nt

Loss

(M

illio

n)

TRM_Typhoon

How many times?

Poisson Model

(Monte Carlo Simulation)

@Risk Developer Kit@Risk Developer Kit

1

… …

0.14

0.23

Basin33

… …0.230.75Basin33

… …… …… …… …

… …20.33Basin2

… …0.81Basin1

… …Basin2Basin1

1

… …

0.14

0.23

Basin33

… …0.230.75Basin33

… …… …… …… …

… …20.33Basin2

… …0.81Basin1

… …Basin2Basin1

Typhoon/FloodDatabase

Frequency Distribution Severity Distribution

( )

yearMinlossaggregateL

baBofeventioflossL

yearMineventsofnumberN

LLLLL

thM

ththiB

thM

N

iiBiBiBiBM

M

:

sin?:

:

?,

1,33,3,2,1∑

=

++++= KK

Simulated M times

EP Curve

2222/23/23

0

1

2

3

4

5

6

7

8

9

10

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32

Loss(1 Billion)

Exce

edin

g Pr

obab

ility

(%)

Application of Loss Exceeding Probability CurveApplication of Loss Exceeding Probability Curve

17 Billion

PML Capital arrangement

Insurance ,Cat Bond

Risk Tolerant

Probable Maximum Loss

2323/23/23

SummarySummary

• Application:

– Engineering model can help decision maker to assess

the risk and to help developing the management

strategy in catastrophe event such as Earthquake or

Typhoon.

• Further research :

– Time – dependent

– Business interruption

• Application:

– Engineering model can help decision maker to assess

the risk and to help developing the management

strategy in catastrophe event such as Earthquake or

Typhoon.

• Further research :

– Time – dependent

– Business interruption

Thank YouThank You