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Protection gap for indirect business interruption
presented by
Dr. Gordon WooInstitute of Catastrophe Risk Managementand RMS
7th August 2018
Institute of Catastrophe Risk Management
Institute of Catastrophe Risk Management
Tokyo
Southern
Kanto
Region
Concentric Re: 1999
Protection against
indirect business
interruption from
a Tokyo region
earthquake
Institute of Catastrophe Risk Management
Boso
PeninsulaChiba
Tokyo
Yokohama
Izu
Peninsula
Kilometers
0 20 40
Maihama
Trigger geometry was
based on concentric circles
around Tokyo Disneyland
Institute of Catastrophe Risk Management
concentric\Moodys
Concentric Re: Parametric Bond
Principal-at-Risk Notes
◼ Issuer: Concentric Ltd.
◼ Security Type 144A
◼ Risk Capital: US $100 million
◼ Maturity: 5 years
◼ Tranches:
Partially Defeased Extendible Units
Target Rating [BBB-], LIBOR +
Principal Variable Notes
Target Rating [BB], LIBOR +
Credit Switch Notes
◼ Issuer: Special Purpose Company
◼ Security Type 144A
◼ Risk Capital:
◼ Maturity: 5 years (with possible 5 year
extension)
◼ Tranches:
JMA Magnitude
100%
25%
38% 63% 75%
100%
6.7 6.9 7.1 7.3 7.5 7.7 7.9
25%
50% 75%
Inner Ring Outer Ring
6.5
100%
50%
88%
25%
40%33% 48% 55% 63%
70%
78%85%
93%
Inner Circle
◼ Trigger: Physical, based on earthquake magnitude, location and
depth
— Magnitude – Sliding scale based on magnitudes > 6.5
— Location – Three circles (Inner Circle, Middle Ring, Outer
Ring) in the Southern Kanto region of Japan defined by
latitude and longitude
— Depth – shallow earthquakes only, 60km or less
— Reporting Agency – Japan Meteorological Agency (JMA)
— Development period – [30] days
Institute of Catastrophe Risk Management
Transaction summary
• Principal at Risk Notes to provide access to risk transfer
capacity for Japanese earthquake risk from the capital markets
• Credit Switch Notes to provide access to risk contingent
financing from the capital markets for Japanese earthquake risk
• First insurance-linked securities transaction sponsored by a
non-insurer
• Sponsor: Oriental Land Co., Ltd.
• Issuer: Concentric Ltd.
• Placement Agent: Goldman Sachs & Co.
Institute of Catastrophe Risk Management
Institute of Catastrophe Risk Management
Exclusion
Zone
Restricted
Access
ZonePeripheral
Zone
Nested zones for parametric
indirect business interruption cover
Institute of Catastrophe Risk Management
Wynward
Miami-Dade
County
Florida Zika virus warning zones
Institute of Catastrophe Risk Management
The ratio of counterfactual to actual
US insurance loss might have been > 5
Institute of Catastrophe Risk Management
After making landfall in Florida early Sunday morning, 10 September 2017, as a Category 4, the center of Irma passed west of Orlando early Monday morning. At that point it had weakened to a Category 1 hurricane, with winds of 85 miles per hour. The park did not lose power, but was hit with high winds and rain. Many trees were downed across its properties and some buildings had water leaks. The Parks reopened on Tuesday, 12 September, 2017.
Irma near-miss for Disney World
Institute of Catastrophe Risk Management
Collateral
economic
loss from
urban
terrorism
13 November 2015: Paris restaurant shootings
La Belle
Équiperestaurant
reopened four
months later on
21 March 2016
Institute of Catastrophe Risk Management
Euro Disney racked up a net loss of €858m in 2016 as visitor numbers fell 10%,
and revenues were down 7%.
Institute of Catastrophe Risk Management
• During the first six months of 2016, tourists visits to the Paris
region were down by 6.4%, compared with 2015. This amounts to
1 million fewer visitors and a €750 million loss.
Tourism contributes 7% to French GDP.
• Hotel stays in Paris were down by 11.4% between January and
June 2016. For the rest of France, the decline was 8.5% on
average.
• Notable national tourist declines were 46.2% fewer Japanese;
35% fewer Russians; 27.7% fewer Italians and 19.6% fewer
Chinese.
Tourism impact of 2015 Paris terrorism
Institute of Catastrophe Risk Management
On 4 March 2018, Sergei and
Yulia Skrypal had lunch at the
Zizzi restaurant and a drink at the
Mill Pub in Salisbury.
These premises are still closed.
Tourism impact of 2018 Salisbury Novichok attack
Institute of Catastrophe Risk Management
Visitor numbers to Singapore were down 61% in the first half of April
2003, and retail sales were down 50%.
Source of the
2003 SARS outbreak.
Hotel occupancy
in Hong Kong
was down to 15%.
SARS lethal contagion
Institute of Catastrophe Risk Management
Population flux spreading pandemic influenza contagion
Institute of Catastrophe Risk Management
0%
5%
10%
15%
20%
25%
13-1
13-2
13-3
13-4
13-5
13-6
13-7
14-1
14-2
14-3
14-4
14-5
14-6
14-7
15-1
15-2
15-3
15-4
15-5
15-6
15-7
16-1
16-2
16-3
16-4
16-5
16-6
16-7
17-1
17-2
17-3
17-4
17-5
17-6
17-7
18-1
18-2
18-3
18-4
18-5
18-6
18-7
Absent Fear
Absent Caring
Absent Sick
ABSENTEEISM IN
WORKFORCE
Week
13
Week
14
Week
15
Week
16
Week
17
Week
18
33 days above 10%
15 days above 20%
At absenteeism
levels >10%,
productivity drops off
disproportionately.
At 20% absenteeism,
many businesses cannot
operate and are likely to
suspend operations.
Sickness and absenteeism
Institute of Catastrophe Risk Management
Antigenic imprinting in 1918
The peak H1N1 mortality
rate at age 28 corresponds
to those born at the time of
the previous pandemic
H3N8 in 1890.
Institute of Catastrophe Risk Management
Born 5 December 1901 Born 2 October 1869
Two famous people who caught the 1918 flu