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 alternative forms of risk transfer including insurance-linked securities (ILS) by insurers in the country Eduard Held, ‎head of products at PERILS, told Baden-Baden Today.

PERILS, a company that provides industry-wide catastrophe insurance data, announced in September that it has extended its market coverage to include Australia. This also means PERILS can now act as a reporting agent for ILS transactions.

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 four-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 said.

He said PERILS is in regular contact with all significant potential protection buyers and sellers and has secured significant support from insurers in Australia. 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.

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, he ‎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 dataset 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.

Australia faces a wide range of perils, including earthquakes, tropical cyclones, floods, bushfires and hail, and also 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.