Aon: Developing the Asian modelling landscape

What are your priorities for creating and updating Asian catastrophe risk models?

The catastrophe risk modelling landscape in Asia has changed significantly over recent years but there remain gaps in addressing the risk. Our focus at Aon is finding solutions for our clients’ needs to address these gaps. We feel very positive in the developments over recent years, with a great many new models becoming available, and we’re a big part of delivering that through Impact Forecasting, Aon`s in house model development team.

We have a strong focus on flood. It’s one of the biggest risk modelling challenges facing our Asian clients. It’s also a major model development challenge to undertake, because the accessibility of information has historically been low, requiring significant investment, which we have been willing to undertake. Last year we released our latest updated model for Thailand flood risk, for example.

That’s not to say we don’t look at other perils and territories. Earthquake and typhoon are also key perils for Asia Pacific and there remain emerging markets which are relatively unmodelled geographies which have faced recent catastrophic events.

Beyond assessing natural catastrophe risk, agricultural, as well as life and health and increasingly cyber risk, are areas of continual focus for us. All these risks are starting to see greater interest in Asian insurance and reinsurance markets.

Have recent cat events produced any modelling surprises and how can the data be improved?

Even in markets that have a relative richness in cat model availability, there can always be surprises when comparing actual events to those simulated. Events can refocus the spotlight on the nature and mechanics of the underlying catastrophe risk, the information that goes into models and where potential improvements can be made.

We face a continued challenge in understanding potential loss as and when an event occurs, especially when an event is different from prior experience.

For Japan, Aon has developed a unique claims estimation service, combining real-time event observations with a proprietary database of all buildings and Chance of Loss curves developed by Impact Forecasting. This provides clients with a view on the number of buildings damaged. Our clients have used this innovation to help them in a number of ways, ranging from increasing customer awareness of catastrophe risk, helping with claims management, or improving loss reporting.

In Singapore, we’re encouraged by industry initiatives such as the Institute of Catastrophe Risk Management’s “NatCatDAX” project. That’s an industry sponsored project to help develop the underlying cat modelling data for large Asian cities including Taipei, Jakarta, Bangkok and Manila.

Initiatives like that are helping the market to develop its understanding of cat risk. We need enhanced data to support the existing capture of insurance information in the region and improve the ability to understand and assess the risks involved.

What are the changes to the regulatory environment for Singapore reinsurers to consider going into 2020?

There are two things worth noting on the regulatory radar for next year.

Firstly, the new IFRS 17 accounting standard is still a hot topic in the market. Deferred until January 2022, a lot of companies are putting time and effort into getting up to speed. Reinsurers will be impacted differently depending on their corporate reporting structure, for example a local subsidiary company of an international reinsurer will be affected much more than a branch office in Singapore.

The second aspect is Singapore’s move towards updating its risk-based capital (RBC 2) solvency policy provision around matching adjustment, illiquidity premium and recognition of internal credit model or process for unrated corporate bonds. Such changes are indicative of risk management and regulatory requirements changing across Asian markets.

Catastrophe risk poses one of the big challenges for Asia Pacific’s economies. Modelling solutions need to keep up with the reinsurance market’s developing exposures, Brad Weir, Head of Analytics for Asia at Aon’s Reinsurance Solutions business tells GR.