PICC Conducts Detailed Earthquake Risk Analysis in China Using AIR’s China Model

June 27, 2005

AIR Worldwide Corporation (AIR) announced that PICC Property and Casualty Company Limited (PICC) has completed the first earthquake risk analysis using AIR’s China earthquake model.

Guy Carpenter coordinated the analysis of the PICC portfolio, which represents more than 60 percent of the property and casualty insurance market in China. In addition to residential, commercial and industrial risks, the analysis covered construction and erection all risks (CAR/EAR), an important line of business in the rapidly developing country.

“As our business continues to grow, it is essential that we effectively manage our risk from catastrophes,” said Zhang Qing, general manager of the Reinsurance Department at PICC. “Of particular concern is earthquake risk to our many CAR/EAR policies, which currently account for 40 to 50 percent of our total earthquake exposure. AIR’s sophisticated engineering-based approach to modeling buildings under construction has given us a better understanding of our risk.”

“Modeling earthquake risk to buildings under construction is challenging because the vulnerability and replacement cost of the structure changes over time,” said Dr. Bingming Shen-Tu, AIR’s Technical project manager for China. “AIR has developed an objective, engineering-based approach that captures this time-dependent vulnerability of buildings under construction, from excavation to project completion.”

In addition to its unique approach to modeling CAR/EAR, the AIR model incorporates a full complement of damageability relationships to estimate potential earthquake damage to China’s widely varied building inventory, which includes masonry, reinforced concrete, and steel frame buildings. To develop these relationships, AIR used the results of well-documented engineering studies, information about China’s building codes, structural analyses, and historical damage data. Detailed information about regional building types, age, and replacement values helps insurers gain a better understanding of their exposures and enables them to more effectively manage their earthquake risk.

“We are impressed with the detailed nature of the AIR model and with the extensive research it represents both in terms of the regional earthquake hazard and China’s diverse building stock,” added Lawrence Liao, CEO Hong Kong Operations at Guy Carpenter, who coordinated the study. “We found AIR’s study to be a comprehensive analysis of PICC’s market-leading property and casualty portfolio in China.”

In addition to the building vulnerability component, AIR’s China earthquake model includes a detailed hazard component. To ensure that this component of the model is built upon the most current scientific findings, AIR’s earthquake team researched local literature and consulted with geophysicists, seismologists, and geologists from major research institutions within the China Earthquake Administration.

The hazard component draws upon China’s extensive historical earthquake experience dating back to 780 B.C., as well as detailed paleoseismic, geologic and GPS information, to depict the locations, magnitudes and occurrence rates of potentially damaging future earthquakes.

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