Catastrophe risk modeling firm AIR Worldwide (AIR) announced that China Property & Casualty Reinsurance Company Ltd. (CPCR) has licensed AIR’s typhoon, earthquake, and multiple-peril crop insurance models for China to better manage its catastrophe risk.
“Because of the rapid urbanization in catastrophe-exposed regions of China, as well as the overall growth in insurance penetration, we recognize the increasing importance of managing our catastrophe risk holistically,” said Yuanyuan Li, deputy general manager, CPCR. “AIR offers a full suite of models for China, including a multiple-peril crop insurance model, which is a growing and important line of business for us. The complete view of catastrophe risk provided by AIR will enhance our understanding of our loss potential and enable us to fashion better risk management strategies.”
“AIR has had an office in Beijing since 2005, and we continue to leverage our regional knowledge and experience to offer our clients superior customer support and scientifically advanced models,” said Uday Virkud, P.E., executive vice president at AIR Worldwide. “Our business relationship with China Property & Casualty Reinsurance Company reflects our continued focus on and growth in this evolving insurance market, where companies are increasingly turning to AIR for sophisticated tools to assess and manage their exposure to catastrophe risk.”
AIR released the industry’s first Multiple Peril Crop Insurance Model for China in 2011. It provides a fully probabilistic approach for determining the likelihood of losses to the country’s major crops of corn, cotton, rapeseed, rice, soybeans, and wheat. The model employs AIR’s advanced Agricultural Weather Index™ to capture the significant effects that weather-related perils have on each crop during different growth stages. It explicitly models damages resulting from various weather perils, including drought, floods, and typhoons, which are the leading causes of crop loss in China. The model accommodates China’s complex policy conditions, which vary depending on crop type, peril, and province.
The AIR Typhoon Model for China captures the risk from both wind and flood — a critically important feature because standard residential, commercial, and construction-all-risks/erection-all-risks (CAR/EAR) policies cover both perils. The model features a unified catalog of nearly 300,000 events affecting China and other modeled countries in the northwest Pacific, allowing local direct insurers in China to analyze country-specific risk. The model also allows global insurers and reinsurers to seamlessly assess the risk to policies and portfolios that span multiple countries, thereby accounting for loss correlations in a physically realistic way.
AIR’s Earthquake Model for China — the development of which was informed by strategic alliances with leading local research institutions — draws on the country’s long historical catalog, including written records of earthquakes dating back to 780 B.C. The model incorporates a catalog of more than 580,000 simulated events, as well as damage functions for more than 200 construction types and occupancy classes, including damage functions for the CAR/EAR line of business. That line comprises a higher portion of insurance business here than in many other regions because of China’s continued and rapid growth.
