P1.24 a Typhoon Loss Estimation Model for China
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P1.24 A TYPHOON LOSS ESTIMATION MODEL FOR CHINA Peter J. Sousounis*, H. He, M. L. Healy, V. K. Jain, G. Ljung, Y. Qu, and B. Shen-Tu AIR Worldwide Corporation, Boston, MA 1. INTRODUCTION the two. Because of its wind intensity (135 mph maximum sustained winds), it has been Nowhere 1 else in the world do tropical compared to Hurricane Katrina 2005. But Saomai cyclones (TCs) develop more frequently than in was short lived, and although it made landfall as the Northwest Pacific Basin. Nearly thirty TCs are a strong Category 4 storm and generated heavy spawned each year, 20 of which reach hurricane precipitation, it weakened quickly. Still, economic or typhoon status (cf. Fig. 1). Five of these reach losses were ~12 B RMB (~1.5 B USD). In super typhoon status, with windspeeds over 130 contrast, Bilis, which made landfall a month kts. In contrast, the North Atlantic typically earlier just south of where Saomai hit, was generates only ten TCs, seven of which reach actually only tropical storm strength at landfall hurricane status. with max sustained winds of 70 mph. Bilis weakened further still upon landfall but turned Additionally, there is no other country in the southwest and traveled slowly over a period of world where TCs strike with more frequency than five days across Hunan, Guangdong, Guangxi in China. Nearly ten landfalling TCs occur in a and Yunnan Provinces. It generated copious typical year, with one to two additional by-passing amounts of precipitation, with large areas storms coming close enough to the coast to receiving more than 300 mm. Bilis was cause damage. The high landfall frequency is a responsible for ~28 B RMB (~3.5 B USD) of result of China being at the western edge of the economic loss. Bilis had half the winds of Saomai Northwest Pacific Basin and to the fact that China but generated twice the loss. Bilis affected six has a coastline extending nearly 14,000 km in a provinces and Saomai affected three. north-south direction and spanning nearly 30 degrees of latitude - from 18 N to 45 N. While China has had a long history of significant typhoon losses, the insurance industry These tropical cyclones, or typhoons as they targeted toward these disasters is still in its are called in that part of the world, cause infancy. Worldwide, the Chinese non-life considerable damage. Over just a recent 16 year insurance market was only the 12 th largest in period, from 1989 to 2005, economic losses 2005. However, within Asia, China ranked 3 rd in totaling in the billions of US dollars have occurred Life and Non-Life Insurance Premiums for the in the coastal provinces of Jiangsu, Zhejiang, and same time (Int’l Ins. Fact Book 2006). Figure 3 Fujian (Guy Carpenter, 2006). Zhejiang has indicates Non-Life Insurance Premiums were actually been the province with the highest losses 10.7 B USD in 2003. Despite its high ranking in since 1989 (cf. Fig. 2). The heavy loss is a Asia, China accounted for only 1.4% of global combined result of high exposure and impact non-life insurance premium income in 2005. from strong typhoons. Insurance Premium Growth in China The word typhoon stems from the Chinese however is among the highest in Asia. Non Life jufeng which originated in 5th century Chinese Per Capita Premiums in China have doubled literature to mean “ a wind coming from four from 2001 to 2005. Only Thailand and Indonesia directions ” (cf. p. 19-20 in Emanuel 2005). have enjoyed higher growth rates (Benfield Typhoons in China certainly cause significant Group Ltd, 2006). damage because of their wind. But typhoons are also responsible for considerable damage from AIR-Worldwide Corporation is a catastrophe flooding that results from torrential rainfall. The modeling firm located in Boston, MA. Its mission significance of flood damage from typhoons is is to develop models and provide information for most recently highlighted by comparing two use by the insurance industry for understanding typhoons that impacted China in 2006: Bilis and risk from Natural and Man-Made Hazards. Saomai. Saomai affected Zhejiang and Fujian Provinces and is perhaps the more showcased of Founded in 1987, AIR pioneered the probabilistic catastrophe modeling technology that revolutionized the way insurers, reinsurers * Corresponding author address: Peter J. and financial institutions manage their Sousounis, AIR-Worldwide Corporation., 131 catastrophe risk. The models developed at AIR Dartmouth Street, Boston, MA 02116; email: enable companies to identify, quantify, and plan [email protected]. Fig 1. Tropical Cyclone Formation (Wind Speeds > 63 km/h) by Ocean Basin. for the financial consequences of catastrophic events. 2. GENERAL STRUCTURE OF CATASTROPHE MODELS AIR has developed risk models for hurricanes, earthquakes, winter storms, Most catastrophe models (or cat Models for tornadoes, hailstorms, wildfires, and flood, for short) share three common elements. The hazard more than 40 countries throughout North component first models the frequency, intensity America, the Caribbean, South America, Europe and duration, if applicable, of the peril that is and the Asia-Pacific region. Recently, AIR responsible for the damage. The engineering or developed a China Typhoon Model to understand damage component then determines the fraction tropical cyclone risk in that country. of the building(s) in affected areas including their contents that have been damaged. Finally, a loss The following sections provide an overview estimation component computes insured losses of the China Typhoon Model components, the by applying the policy conditions to the total regionally specific meteorological and damage estimates. Policy conditions may include hydrological aspects of the model, and results deductibles by coverage, site-specific or blanket that highlight the typhoon risk in China. deductibles, coverage limits and sub-limits, loss triggers, coinsurance, attachment points and Economic Losses 1989-2005 limits for single or multiple location policies, and risk specific reinsurance terms. 791 – 3,160 B RMB 3,161 – 13,430 B RMB For estimation of insured losses, two 13,431 – 25,280 B RMB important input data files are the event catalog 25,281 – 43,450 B RMB and the exposure file. The catalog file provides a complete list of synthesized (e.g., stochastic) Shandong events along with their attributes over a 10,000 year period representing 10,000 scenarios of Jiangsu Shanghai storm activity that could occur in any given year. Zhejiang The second file, the exposure file, contains area averaged information about building types, Fujian construction materials, construction designs, Guangxi Guangdong occupancy, and height, as well as total replacement values for the buildings and associated contents. In addition to an industry Hainan China Oceanic Disaster Bulletin (1989 – 2005) exposure file that is developed internally, exposure files are often supplied by an insurance Fig. 2. Economic Losses in China from Typhoons or re-insurance client who is interested in as reported in China Oceanic Disaster Bulletin. knowing what the potential losses would be on their particular portfolio. Non-Life Insurance Premiums (2005) of friction, terrain, and shorter-period gusts using Vietnam high resolution land use/land cover and digital- Philippines elevation data to obtain a 1-minute 10-meter wind Indonesia over land. Thailand Malaysia Windspeeds are computed at every hour of Singapore the storm’s lifetime for all exposure points and Hong Kong stored as necessary. Very weak winds are India ignored as they do not contribute to damage. Taiwan Thus, for each location in question, a temporal China profile of damaging winds is produced for use in South Korea the other two model components. Japan In the damage component of the model, the 0 20 40 60 80 100 120 temporal profile is used in conjunction with the Premiums (B USD) relevant exposure information and proprietary damage functions (DFs) developed at AIR. These Fig. 3. Non-life insurance premiums in billions of DFs account for the fact that different types of US dollars for 2005 for selected countries in Asia. buildings behave differently under strong wind conditions. Building types are based on construction material as well as occupancy class For tropical cyclone models, the stochastic and height. For example, a three-story wooden storm tracks are generated using probability residential structure will be much more models that are developed and based on susceptible to wind damage than a one-story historical information. Specifically, stochastic commercial steel structure. storms are generated by first drawing a starting point probabilistically over the Northwest Pacific At each exposure point, the fractional Ocean, for example. The initial track direction of damage of the building and its contents as well the storm, as well as forward speed, intensity and as additional time-element related damage is radius of maximum winds are assigned according computed. Time-element damage is that which to the probability distribution derived from relates to a business possibly being disrupted for historical data. Time series models are then used some time following the event. If a flood to simulate storm path and characteristics along component is included in the tropical cyclone the path – basically to move the storm forward. model, as is the case here with the AIR China This process is repeated for every 6-hourly point. Typhoon Model, then that damage is determined This way a potential typhoon is generated with in a similar way, with flood depth information hourly information. The algorithm automatically rather than windspeed information, and with flood determines whether the storm makes landfall. DFs rather than wind DFs. The flood component With this Monte Carlo method, potential typhoons will be discussed in more detail in the next are generated for hundreds and thousands of section. years. The collection of possible events is called a stochastic catalog.