May 16th, 2017

Public Sector Risk Financing Perspectives in Asia Pacific: Part II: Highlights of Recent Initiatives

Posted at 1:00 AM ET

graham-jones-smGraham Jones, Senior Vice President


In July 2016, the China Residential Earthquake Insurance Pool (CREIP) was jointly established by the China Insurance Regulatory Commission (CIRC) and Ministry of Finance. In development since 2014, the scheme consists of 45 insurers distributing policies with basic limits of USD 7,500 and USD 3,000 for urban and rural residents, respectively. Coverage up to a maximum limit of USD 150,000 is negotiable. The claims process has been simplified with payouts equaling zero, 50 or 100 percent of the policy limit based on five damage levels.

The scheme would respond via five layers of priority:

1. insured’s deductible;

2. insurance product;

3. reinsurance support;

4. reserve funds available to the pool; and

5. government backstop.

China Re P&C assists in insurance product design, rate determination and reinsurance responsibilities. As of September 2016, approximately 15,000 policies were sold totaling approximately USD 900 million of limit.

Data and Analytics

The emergence of robust risk analytics is one of the most important enablers for transferring public sector risk to the private sector and de-risking public balance sheets (1). For many years, the Asia (re)insurance market lacked a widely accepted catastrophe model. Now, independent vendors provide over 60 catastrophe models across the major perils and territories; projects like the Singapore-based Natural Catastrophe Data and Analytics Exchange (NatCatDAX) Alliance, led by Nanyang Technological University, seek to improve the availability of quality exposure and loss data; and computing power to run granular analyses required for flood models is more economical than ever.

Alternative capital sources comprise 17 percent of total global reinsurance capital. As early as ten years ago, alternative capital accounted for only three to five percent of the total. Deployment of catastrophe bonds and collateralized reinsurance primarily occurs in more mature Asian markets such as Japan and Australia, but cedents throughout Asia may benefit - although indirectly - in the coming years as third party investors search for diversification through new lines of business and geographies.

Link to Part I>>

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1. Guy Carpenter: Partnerships: The Way to Public Sector Risk Financing, October 2015.

*Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities LLC, a US registered broker-dealer and member FINRA/NFA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Securities or investments, as applicable, are offered in the European Union by GC Securities, a division of MMC Securities (Europe) Ltd. (MMCSEL), which is authorized and regulated by the Financial Conduct Authority, main office 25 The North Colonnade, Canary Wharf, London E14 5HS. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities LLC, MMC Securities (Europe) Ltd. and Guy Carpenter & Company, LLC are affiliates owned by Marsh & McLennan Companies. This communication is not intended as an offer to sell or a solicitation of any offer to buy any security, financial instrument, reinsurance or insurance product. **GC Analytics is a registered mark with the U.S. Patent and Trademark Office.

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