Better cat data could open Australia market to ILS deals

Improvements in the availability of event loss data for Australia could encourage the use of insurance-linked securities (ILS) by insurers in the country—something that would also offer ILS investors much-needed diversification in the risks they are able to invest in.

PERILS, a company that provides industry-wide catastrophe insurance data, announced in September that it has extended its market coverage to include Australia. Eduard Held, ‎head of products at PERILS, told PCI Today that this also means PERILS can now act as a reporting agent for ILS transactions.

“Our role as a reporting agent is a well established one, well accepted by the global ILS market,” he said.

He said PERILS is in regular contact with all significant potential protection buyers and sellers including those in the ILS community. “We try and we make them aware of the availability of Australian data,” he said.

As one of the major cat markets in the world, Australia has significant risk transfer needs and the greater transparency of data is going to be of great use to that market, Held ‎said.

PERILS provides independent insurance market data to help the modelling community improve cat models, something that can help create new capacity and new instruments for the risk transfer market.

It does this by collecting property sums insured and event loss data from primary insurers in Australia per postcode and property line of business. Based on the collected data, PERILS produces an independent and objective data set of market exposures (total sums insured) and market event losses.

This information can be used for a range of applications, including for industry loss-based risk transfer products such as industry loss warranties and ILS, as well as catastrophe risk model validation.

PERILS has secured support from local primary insurers. Its coverage in Australia—measured by property premium—is between 60 and 80 percent.

“This makes us feel very comfortable when establishing a high-quality market database,” said Held.

Australia faces a wide range of perils, including earthquakes, tropical cyclones, floods, bushfires and hail, plus extratropical cyclones, also known as the east coast lows.

PERILS will provide event loss data for any events above a market loss of A$500 million caused by the aforementioned perils.

Held believes Australia’s market is currently underserved in terms of catastrophe loss and exposure data, and PERILS will help fill this gap.

“PERILS will produce loss data in an independent, very systematic and reliable form, per 4-digit postcode, ie, in a high resolution. Based on my knowledge this is so far not available in the Australian market,” said Held.

“When combined with loss data these allow a range of analysis including the validation and calibration of nat cat models,” he concluded.