Swiss Re: Typhoon Saola may trigger Guangdong parametric reinsurance

Global reinsurance firm Swiss Re may be required to help pay claims related to typhoon Saola’s impacts in the province of Guangdong, China, as the company believes a parametric scheme that it reinsures could be triggered, executives said in Monte Carlo yesterday.

Speaking at a media briefing, Swiss Re’s Gianfranco Lot, Chief Underwriting Officer, P&C Reinsurance at the company, explained that this is a good example of the company deploying its reinsurance capacity to close protection gaps.

Discussing the Asia region and the role of a reinsurer in closing protection gaps for natural catastrophe and climate risks, Lot highlighted this scheme.

He explained, “Case in point, Saola, just hit Hong Kong and the Guangdong region and clearly, we’re looking at that very, very carefully.

“But with a high probability, unfortunately, we’ll find out that the protection gap is very, very large there.”

Typhoon Saola made landfall in the southern Chinese province of Guangdong at the start of this month having already impacted Hong Kong with strong winds and flooding rains.

It had been a super typhoon at one stage, but came ashore in Zhuhai city with sustained winds reported to be around 100 mph (160 kph).

This high-value region of China, with Guangdong province home to many cities and urban centres, has a parametric insurance scheme in place to cover typhoon, floods and extreme rainfall, with Swiss Re as the reinsurance provider, also on a parametric basis.

The parametric insurance scheme utilises satellite and meteorological data for trigger inputs, and covers 10 municipal governments in the Guangdong province.

The insurance is provided by Chinese carriers, PICC, Ping An, CPIC we understand, with Swiss Re backing up the risk with its reinsurance capacity.

It’s a parametric risk transfer program that has been designed to support the local municipal governments, to enable disaster response and faster rebuilding.

The parametric trigger is based on pre-defined parameters such as cyclone wind speed or rainfall, paying out rapidly once trigger parameters are met.

Lot commented yesterday, “Now we have a scheme with the Guangdong government which we reinsure on a parametric basis, so that’s a very innovative product that we’ve launched there, and it’s likely to pay out.

“We don’t know yet exactly, but, but it’s one of those examples where parametric insurance is designed to reduce that protection gap and we have others in other parts of the world that have a similar structure.

“So clearly, Asia for us, there’s a necessity to address that protection gap and sometimes you do it with governments and sometimes with innovative products that are designed to address some of the exposures that are existing there. There’s a lot of work ahead of us today and clearly, a lot of potential.”

When first transacted, the parametric risk pool from this insurance product amounted to US $350 million. It’s not clear what size it is today, nor how much of that risk Swiss Re could be on the hook for.

This parametric insurance scheme has paid out before, when super typhoon Haima made landfall in the city of Shanwei in October 2016.

Moses Ojeisekhoba, CEO Global Clients & Solutions at Swiss Re, also highlighted the important role for reinsurers in closing protection gaps in the Asia region.

“If you look at the last five years, Asia has powered the growth rates of the entire world. If you take out China and Asia, then you actually end up with almost negative growth everywhere else,” Ojeisekhoba said.

“The forecast over the next 10 years, the fastest growing region will remain Asia. As a consequence of that the protection gap is still significant, but premiums will also grow materially.

“So it’s a super relevant region it will power growth, but as Gianfranco just mentioned, there is a massive protection gap. So there’s a lot of work that has to be done.”