The Turkish Catastrophe Insurance Pool (TCIP), which manages compulsory earthquake insurance in Turkey, has issued its second parametric earthquake bond to provide protection against such natural disasters in Istanbul.
California-headquartered RMS, a global CAT risk management firm, conducted the risk analysis for the new CAT bond issued through Bosphorus Ltd, using the RMS® Europe Earthquake Model. The bond closed on 17 August, the 16th anniversary of the Marmara quake, and transfers US$100 million of catastrophic earthquake risk to the capital markets.
“After the positive outcome of the Bosphorus 1 Re transaction in 2013, TCIP and RMS collaborated once again to create a new index, using ground motion observations across an expanded network of 73 strong-motion seismometers,” said Mr Suha Çele, Executive Board Member of Eureko Sigorta.
Mr Remzi Duman, Reinsurance Director at Eureko Sigorta, added: “The transparent trigger mechanics were understood and accepted by investors, and strong demand made this a highly successful transaction.”
The RMS Europe Earthquake Model uses a pan-European seismic source model to assess earthquake hazard in Istanbul and includes consideration of time-dependent earthquake recurrence on the North Anatolian Fault. The RMS methodology for modelling parametric earthquake transactions includes simulation of hazard uncertainty to adequately capture the risk profile of the deal.
Economic loss from next big quake could reach US$120 bln
Meanwhile, according to the Hurriyet Daily, magnitude-7.5 earthquake that is likely to strike Istanbul within the next few decades is expected to cause up to $120 billion in economic losses, of which insurance losses are projected at $30 billion, said Aksigorta’s General Manager, Mr Ugur Gulen.
The 1999 magnitude-7.5 Marmara earthquake that struck Istanbul’s neighbouring province of Kocaeli claimed 17,000-18,000 lives, wounded almost 50,000 others, and caused damages of $20 billion.
The earthquake that geologists and researchers believe is certain to take place in the coming decades in Istanbul is expected to cause much greater damage, only about a quarter of which is expected to be covered by insurance, Mr Gulen said. Total losses would amount to 11-15% of the country’s GDP.