Turkish Catastrophe Insurance Pool Uses RMS Earthquake Model for New Bond

The new Bosphorus Catastrophe Bond closed August 17, 2015 and transfers $100 million of catastrophic earthquake risk to the capital markets.

(View from Rumeli Hisari over the Bosphorus Strait. Photo credit: Kerem Barut.)

Bosphorus Ltd has used RMS’s (Newark, Calif.) Europe Earthquake model to conduct risk analysis for a new catastrophe bond. The bond is sponsored by the Turkish Catastrophe Insurance Pool, a legal entity responsible for the implementation of Compulsory Earthquake Insurance in Turkey, which is in turn managed by Eureko Sigorta A.Ş. (Istanbul). The bond closed August 17, 2015 and transfers $100 million of catastrophic earthquake risk to the capital markets. This deal is the second parametric earthquake bond issued by TCIP to provide protection against earthquakes in Istanbul.

Ibrahim Süha Çele, Executive Board Member, Eureko Sigorta A.Ş.

Ibrahim Süha Çele, Executive Board Member, Eureko Sigorta A.Ş.

“After the positive outcome of the Bosphorus 1 Re transaction in 2013, TCIP and RMS collaborated once again to create a new index, using ground motion observations across an expanded network of 73 strong-motion seismometers,” comments Ibrahim Süha Çele, executive board member of Eureko Sigorta A.Ş.

Remzi Duman, reinsurance director responsible for reinsurance affairs of Eureko Sigorta A.Ş., adds, “The transparent trigger mechanics were understood and accepted by investors, and strong demand made this a highly successful transaction.”

(Related: AXA Global Life Selects RMS to Analyze Risk on Excess Mortality Bond)

Remzi Duman, Reinsurance Director, Eureko Sigorta A.Ş.

Remzi Duman, Reinsurance Director, Eureko Sigorta A.Ş.

The RMS Europe Earthquake Model uses a pan-European seismic source model to assess earthquake hazard in Istanbul and includes consideration of time-dependent earthquake recurrence on the North Anatolian Fault, the vendor reports. The RMS methodology for modeling parametric earthquake transactions includes simulation of hazard uncertainty to adequately capture the risk profile of the deal.

“The successful Bosphorus deal shows that investors are keen to take on diversifying perils when the risks are adequately understood through robust modeling,” comments Ben Brookes, VP, capital markets at RMS. “RMS’ experience with deals such as MetroCat Re and Bosphorus 1 Re helps public bodies such as TCIP transfer catastrophe risk to the capital markets through intelligently structured, insurance-linked securities.”

Anthony R. O’Donnell // Anthony O'Donnell is Executive Editor of Insurance Innovation Reporter. For nearly two decades, he has been an observer and commentator on the use of information technology in the insurance industry, following industry trends and writing about the use of IT across all sectors of the insurance industry. He can be reached at [email protected] or (503) 936-2803.

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