Protection gap for indirect business interruption

presented by

Dr. Gordon WooInstitute of Catastrophe Risk Managementand RMS

7th August 2018

Institute of Catastrophe Risk Management

Institute of Catastrophe Risk Management

Tokyo

Southern

Kanto

Region

Concentric Re: 1999

Protection against

indirect business

interruption from

a Tokyo region

earthquake

Institute of Catastrophe Risk Management

Boso

PeninsulaChiba

Tokyo

Yokohama

Izu

Peninsula

Kilometers

0 20 40

Maihama

Trigger geometry was

based on concentric circles

around Tokyo Disneyland

Institute of Catastrophe Risk Management

concentric\Moodys

Concentric Re: Parametric Bond

Principal-at-Risk Notes

◼ Issuer: Concentric Ltd.

◼ Security Type 144A

◼ Risk Capital: US $100 million

◼ Maturity: 5 years

◼ Tranches:

Partially Defeased Extendible Units

Target Rating [BBB-], LIBOR +

Principal Variable Notes

Target Rating [BB], LIBOR +

Credit Switch Notes

◼ Issuer: Special Purpose Company

◼ Security Type 144A

◼ Risk Capital:

◼ Maturity: 5 years (with possible 5 year

extension)

◼ Tranches:

JMA Magnitude

100%

25%

38% 63% 75%

100%

6.7 6.9 7.1 7.3 7.5 7.7 7.9

25%

50% 75%

Inner Ring Outer Ring

6.5

100%

50%

88%

25%

40%33% 48% 55% 63%

70%

78%85%

93%

Inner Circle

◼ Trigger: Physical, based on earthquake magnitude, location and

depth

— Magnitude – Sliding scale based on magnitudes > 6.5

— Location – Three circles (Inner Circle, Middle Ring, Outer

Ring) in the Southern Kanto region of Japan defined by

latitude and longitude

— Depth – shallow earthquakes only, 60km or less

— Reporting Agency – Japan Meteorological Agency (JMA)

— Development period – [30] days

Institute of Catastrophe Risk Management

Transaction summary

• Principal at Risk Notes to provide access to risk transfer

capacity for Japanese earthquake risk from the capital markets

• Credit Switch Notes to provide access to risk contingent

financing from the capital markets for Japanese earthquake risk

• First insurance-linked securities transaction sponsored by a

non-insurer

• Sponsor: Oriental Land Co., Ltd.

• Issuer: Concentric Ltd.

• Placement Agent: Goldman Sachs & Co.

Institute of Catastrophe Risk Management

Institute of Catastrophe Risk Management

Exclusion

Zone

Restricted

Access

ZonePeripheral

Zone

Nested zones for parametric

indirect business interruption cover

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Wynward

Miami-Dade

County

Florida Zika virus warning zones

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The ratio of counterfactual to actual

US insurance loss might have been > 5

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After making landfall in Florida early Sunday morning, 10 September 2017, as a Category 4, the center of Irma passed west of Orlando early Monday morning. At that point it had weakened to a Category 1 hurricane, with winds of 85 miles per hour. The park did not lose power, but was hit with high winds and rain. Many trees were downed across its properties and some buildings had water leaks. The Parks reopened on Tuesday, 12 September, 2017.

Irma near-miss for Disney World

Institute of Catastrophe Risk Management

Collateral

economic

loss from

urban

terrorism

13 November 2015: Paris restaurant shootings

La Belle

Équiperestaurant

reopened four

months later on

21 March 2016

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Euro Disney racked up a net loss of €858m in 2016 as visitor numbers fell 10%,

and revenues were down 7%.

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• During the first six months of 2016, tourists visits to the Paris

region were down by 6.4%, compared with 2015. This amounts to

1 million fewer visitors and a €750 million loss.

Tourism contributes 7% to French GDP.

• Hotel stays in Paris were down by 11.4% between January and

June 2016. For the rest of France, the decline was 8.5% on

average.

• Notable national tourist declines were 46.2% fewer Japanese;

35% fewer Russians; 27.7% fewer Italians and 19.6% fewer

Chinese.

Tourism impact of 2015 Paris terrorism

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On 4 March 2018, Sergei and

Yulia Skrypal had lunch at the

Zizzi restaurant and a drink at the

Mill Pub in Salisbury.

These premises are still closed.

Tourism impact of 2018 Salisbury Novichok attack

Institute of Catastrophe Risk Management

Visitor numbers to Singapore were down 61% in the first half of April

2003, and retail sales were down 50%.

Source of the

2003 SARS outbreak.

Hotel occupancy

in Hong Kong

was down to 15%.

SARS lethal contagion

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Population flux spreading pandemic influenza contagion

Institute of Catastrophe Risk Management

0%

5%

10%

15%

20%

25%

13-1

13-2

13-3

13-4

13-5

13-6

13-7

14-1

14-2

14-3

14-4

14-5

14-6

14-7

15-1

15-2

15-3

15-4

15-5

15-6

15-7

16-1

16-2

16-3

16-4

16-5

16-6

16-7

17-1

17-2

17-3

17-4

17-5

17-6

17-7

18-1

18-2

18-3

18-4

18-5

18-6

18-7

Absent Fear

Absent Caring

Absent Sick

ABSENTEEISM IN

WORKFORCE

Week

13

Week

14

Week

15

Week

16

Week

17

Week

18

33 days above 10%

15 days above 20%

At absenteeism

levels >10%,

productivity drops off

disproportionately.

At 20% absenteeism,

many businesses cannot

operate and are likely to

suspend operations.

Sickness and absenteeism

Institute of Catastrophe Risk Management

Antigenic imprinting in 1918

The peak H1N1 mortality

rate at age 28 corresponds

to those born at the time of

the previous pandemic

H3N8 in 1890.

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Born 5 December 1901 Born 2 October 1869

Two famous people who caught the 1918 flu