RMS Releases New Japan Typhoon Parametric Industry Loss Index

September 21, 2010

Risk Management Solutions has added to its Japan typhoon existing suite of parametric industry loss indices. The program “now includes the insurance industry’s five largest peril regions – U.S. hurricane and earthquake, Europe windstorm, Japan typhoon and earthquake,” said the bulletin.

Paradex Japan Typhoon “combines wind speed data from a network of stations operated by the Japan Meteorological Agency (JMA) with industry exposure data to calculate insured loss estimates. The index can be used to structure and monitor catastrophe bonds, industry loss warranties, and derivative contracts.

“The index provides loss estimates by city/ward and line of business for all 47 prefectures in Japan, enabling issuers to tailor the index to match their exposures and minimize the risk of a security failing to fully cover their event losses.

Peter Nakada, managing director of RMS RiskMarkets, noted that “Paradex Japan Typhoon is significantly faster than any other authority in providing loss estimates, whilst offering a robust track record when tested against historical events. By building indices for the five major peril regions, we’ve opened the door to perform swaps where both sides can be based on Paradex, and laid the foundations to structure efficient transactions covering multiple perils and regions.”

The index provides smooth and transparent transfer of catastrophe risk to the capital markets, with contracts settling in just 40 business days or fewer following a typhoon, giving insurers and reinsurers fast access to the capital required to pay claims. The benefit to investors is that they do not need a detailed understanding of the insurance claims process to evaluate the attractiveness of an investment, since securities are based purely on the typhoon hazard.

For more information about Paradex, go to: https://www.rms.com/Publications/Paradex_brochure.pdf

Source: Risk Management Solutions

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