March 4th, 2009

CRESTA Zone Updates

Posted at 12:30 AM ET

Instrat® Asia-Pacific
Contact

Swiss Re and Munich Re, which are responsible for Catastrophe Risk Evaluating and Standardising Target Accumulations (CRESTA1) boundaries, have recently made some major updates to the zones in a number of countries. In the Asia-Pacific region, the CRESTA boundaries for Australia, China, Japan, and New Zealand have undergone significant changes.

Australia, which originally consisted of 49 CRESTA zones, has been changed to align with the four-digit postcode boundaries. The CRESTA list now contains 2629 four-digit postcode boundaries.

China, which originally consisted of 59 CRESTA zones, has also been changed to align with the four-digit postcode boundaries. The CRESTA list now contains 2473 four-digit postcode boundaries.

Japan, which originally consisted of 12 CRESTA zones, has been changed to align with municipality boundaries. There are now no sub-CRESTA zones and the CRESTA list now contains 1958 municipality code boundaries.

New Zealand, which originally consisted of 17 CRESTA zones, has been changed to align with the four-digit postcodes. The CRESTA list now has1055 four-digit postcode boundaries.

These changes could be considered a reflection of how the insurance industry in the Asia-Pacific region now relies more heavily on catastrophe model-based assessment. The underlying methodology for many CRESTA zones (CRESTA was set up by the insurance industry in 1977) was to establish a system that allowed for accumulation risk control based on insured values and the actual natural hazard risks to which a company is exposed. Since then, computer-based risk assessment has become predominant, and in many cases, analysis has been occurring regularly at a higher resolution than the original CRESTA zonation.

These changes in CRESTA zones will not necessarily produce any significant effects to catastrophe analysis (as long as users are aware of the changes), but they could lead to confusion in aggregate reporting. Many companies monitor their general year-on-year aggregations at the CRESTA level, and certain zones are known in underwriting circles internationally (such as Zone 5 in Japan covering Tokyo, Zones 41,42, and 43 covering Sydney, and Zone 10 in New Zealand covering Wellington). Under the new system, these numbers do not exist.

Guy Carpenter has discussed these changes with the major catastrophe model vendors, and they have informed us that they will incorporate the changes in subsequent model releases. Guy Carpenter’s online portfolio management system, i-aXs, already allows a user to aggregate data at these new levels and compare back to the old zones.

Contact Information

Questions regarding the CRESTA zone changes may be directed to the Instrat Asia-Pacific team members listed below:

Instrat:
David Lightfoot, Managing Director, Seattle, +1 206 621 3954
Peter Cheesman, Senior Vice President, Sydney, +612 8864 8534
Jicang Guo, Senior Vice President, Tokyo, +81 3 5353 0448
Michael Owen, Senior Vice President, Singapore, +65 6327 3435

Broking:
James Nash, CEO - Asia-Pacific, Tokyo, +81 3 5353 0448
Scott Grove, Managing Director, Sydney, +612 8864 8540
Lawrence Liao, Managing Director, Hong Kong (China), +852 2582 3530

Footnotes:

  1. For further information, please visit www.cresta.org.
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