Terra Seismic at 12th Insurance Linked Securities Summit
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Cat Bond Markets : New horizons are approaching. For Cat Bond Players, Insurers, Resinsurers, Asset Managers and Risk Officers

Cat Bond Markets : New horizons are approaching. For Cat Bond Players, Insurers, Resinsurers, Asset Managers and Risk Officers

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Terra Seismic at 12th Insurance Linked Securities Summit Terra Seismic at 12th Insurance Linked Securities Summit Presentation Transcript

  • Cat Bond Markets : New horizons are approaching Terra Seismic at 12th Insurance Linked Securities Summit, New York, 30th September, 2013 1 If you know the time and location of shortly forthcoming big earthquakes, preparation can substantially reduce human misery and losses. Governments, cat bond players, insurers, reinsurers, risk officers, asset managers can use this information to mitigate risks and avoid huge losses.
  • In 2011, an unimaginable earthquake struck Japan and triggered a devastating Tsunami $2 billion across 10 bonds were impacted, both through indemnity and parametric structuring of contracts - Muteki Ltd. Was fully triggered and $300 million collateral was paid out to originator - 4 other bonds were downgraded until their expiration 200 202 204 206 208 210 212 214 216 2.25.11 3.4.11 3.11.11 3.18.11 3.25.11 4.1.11 4.8.11 4.15.11 4.22.11 4.29.11 5.6.11 CAT Total Return Index Post Tohoku Index down and out by 7% for more than 2 months! It doesn’t have to be so. But to understand this, we will do a little bit of myth busting. 2
  • Biggest Myth about quakes: Big Earthquakes are not forecestable Case 1. Japan, Tokyo Earthquake: It’s common in Japan that every 100 years a big EQ will hit Tokyo. Last time it happened in 1923. Case 2. Chile, Atacama: Magnitude 8.0 or more Chile earthquakes on Atacama range - These releases of energy are once in every 75 to 150 years. Last time it happened in 2010 Case 3. Turkey, North Anatolian fault: A magnitude 7.0 or more earthquake occurs approximately every 10 years on the North Anatolian fault. Last time it happened in 1999 Case 4. Japan, Tokai Earthquake: Regularly with an interval of 100 to 150 years the Tōkai segment has been struck by great shallow earthquakes in 1498, 1605, 1707 and 1854. Case 5. Italy, L'Aquila earthquakes: The city was struck by strong earthquakes in 1315, 1349, 1452, 1501, 1646, 1703, 1706, and 2009. Until now, most important question evades us - But the most relevant question - can we calculate probability for each of these quakes that it strikes, say, within shorter period of time, say, within next one-two month? History of Earthquakes across Major Fault Lines - 3
  • Another Myth: After a big earthquake occurs, a repeat earthquake in the same area is unlikely Case 1. The catastrophic 2008 Sichuan (MS=8.0) Earthquake that led to 70,000 people losing their life has been followed by several seismic activities including the 2013 Lushan (MS=7.0) Earthquake in the same province of China resulted in 196 people dead, 24 missing, at least 11,826 injured. Case 2. New Zealand experienced a significant earthquake (ML=7.1) near Christchurch in September 2010 and a repeat one of ML=6.3 across the same fault in February 2011 that was much more damaging and become one of the nation's deadliest peacetime disasters. Earthquakes are forecastable and repeat earthquakes in same area can be anticipated before they occur. Now, we want to show you a few of our forecasts in the last months. 4
  • Date and Time of the forecast (UTC) Latitude, degrees Longitude, degrees Magnitude Region Lag Forecast results The real magnitude(days) 4.06.13 15:00 44.00±1.5 11.00±1.5 5+ Italy 16 21.06.13 10:33 5.3 www.terraseismic.com: World-wide alerts for major earthquake Successful forecasts - Example from Italy On the 4th June Terra issued forecast for M5+ earthquake in Northern Italy with below forecasting data (blue): Sixteen days later, on the 21st June, M5.3 earthquake (red) hit the defined area. Statistically, there is just a 4% chance of forecasting 21 June 5.3M event at random! Realized epicenter Terra’s forecast radius (dangerous area) 5
  • Date and Time of the forecast (UTC) Latitude, degrees Longitude, degrees Magni- tude Region Lag Forecast results The real magnitude(days) 5.04.13 15:00 35.00±1.5 135.00±1.5 6 Japan 7 12.04.13 20.33 5.8 www.terraseismic.com: World-wide alerts for major earthquake Example from Japan Realized epicenter Terra’s forecast radius (dangerous area) On the 5th April Terra issued forecast for M6 earthquake in Japan with below forecasting data (blue): Seven days later, on the 12th April, an M5.8 earthquake (red) hit the defined area and 33 people were injured (9 seriously) – 4151 houses damaged, 2 destroyed. 6
  • Date and Time of the forecast (UTC) Latitude, degrees Longitude, degrees Magnitude Region Lag Forecast results The real magnitude(days) 5.03.13 14:00 29.00±1.5 52.00±1.5 5.5+ Iran 35 9.04.13 14:44 6.3 Realized epicenter www.terraseismic.com: World-wide alerts for major earthquake Example from Iran On the 5th March Terra issued forecast for M5.5+ earthquake in Iran with below forecasting data (blue): Terra’s forecast radius (dangerous area) Bushehr atomic plant On the April 9th, 35 days later a M6.3 earthquake (red) hit in the defined area, close to Iran Bushehr atomic plant: luckily, no serious damage to reactor. Persian Gulf is the world’s most important oil transportation artery. What will be consequences for oil prices & financial markets if future event was more serious? 7
  • Date and Time of the forecast (UTC) Latitude, degrees Longitude, degrees Magnitude Region Lag Forecast results The real magnitude(days) 22.06.13 15:00 2.00±2.0 100.00±2.0 5 Indonesia 13 06.07.13 10:33 6.1 www.terraseismic.com: World-wide alerts for major earthquake Example from Indonesia Sample: On the 22th June Terra issued forecast for M5 earthquake in Indonesia with below forecasting data (blue): On the July 6th, 13 days later M6.1 earthquake (red) hit in the defined area in the sea, close to Kuala Lumpur, Malaysian capital and big financial center. In the case future earthquake in this area will produce tsunami, what will be consequences for Asian financial markets? Terra’s forecast radius (dangerous area) Realized epicenter Kuala Lumpur 8
  • Date General Location Latitude Longitude Mag range Day range 8.31.2013 Pakistan 26N±1.5 67E±1.5 5.5 1-30 9.18.2013 Pakistan 28.5N±1. 5 70E±1.5 6 1-30 9.22.2013 Off coast of Pakistan 23N±1.5 64E±1.5 5.5 1-30 Behind the Scenes of last week’s Pakistan Earthquake prediction 3 alerts over last month - Date of quake Time(UTC) Region Lat Long M Lag(days) 9.24.2013 11:29 Pakistan 27N 65.5E 7.7 24 9
  • Date General Location Latitude Longitude Mag range Day range 9.6.2013 Southern Peru 17S±1.5 72W±1.5 6+ 1-40 Behind the Scenes of last week’s Peruvian Earthquake Prediction The 6th of September Forecast - Date of quake Time(UTC) Region Lat Long M Lag(days) 9.26.2013 16:42 Near Coast of Southern Peru 15.91 74.63 7 19 10
  • An earthquake is a physical event when enormous energy is releasing. But, energy is releasing not just when an earthquake strikes, BUT ALSO during PREPARATORY STAGE of the future earthquakes. Release of this excessive(above normal) energy always lead to: Appearance of unusual behavioral of living beings, such as animals, frogs, snakes, dogs, fishes etc. and appearance of very unusual natural events which may be detected by local residents close to the area of the future earthquake Unusual phenomena before earthquakes frogs are escaping area of future quake before event 12 May 2008 unusual colorful clouds 30 minutes before Sichuan quake 11
  • An earthquake is an enormous release of energy. However this energy is not released only when the event occurs, but also during several stages before the earthquake. Release of this excessive energy leads to: The appearance of abnormalities (thermal, ionic, etc.) in the atmosphere near the location and timing of a future earthquake. These abnormalities can be detected by today’s satellite earth observation systems and ground based instruments. Overall, Our R&D team consolidates the results of efforts in seismology, plates tectonics theory, geochemistry, atmospheric electricity, applied aerospace, geology, theory of nonlinear processes and others. By observations of Pre-Earthquake Phenomena from satellite earth observation systems How can earthquakes be forecasted up to 30 days before they occur? This consolidated model can identify the region of major, future earthquakes up to 30 days before the event. Up to now, this has been impossible, and we want to share this amazing technology with you, so we can save lives and educate the world about these events. 12
  • Introducing Dynamic Risk in EQ Risk Assessment: L’Aquila (Italy) Example 1315 1349 1452 One way to calculate earthquake risk is Static risk through historical likelihood of the event across a specific fault segment. On the other hand, Dynamic risk of a quake in specific area is calculated on observed phenomena of acceleration of seismic processes. These processes act as precursors for our forecasts. Let’s take the example of L’Aquila to Illustrate how to use both in conjunction - 1501 1646 in Dec 2008 5 April 6 April 2009 M6.3 quake, 307 people killed… now 5 month period of increased Dynamic risk M4.5 quakeObserved unusual phenomena series of quakes, quake lights, unusual behavior of living beings, etc Dec 2008 Then, suddenly… 1703 302 years of Static risk 1706 Return to period of no precursors: price risk statically in long run contracts until next period of dynamic risk Earthquakes in L’Aquila 13
  • Short-term (up to 30 days) earthquake forecast for >5.5M events Update is daily Mid-term (1-3 months) earthquake forecast for >6M events Update is monthly Long-term (up to 5 years) earthquake forecast for major(>7.5-8M+) events Update is 6 mo. Earthquake AlertInfo. Services Proprietary research on earthquakes and financial markets Impact on various markets and possible EQ scenario analysis Hedging and investment solutions Solutions for before and after event that improve rational behavior New market and product development We provide you with the Terra big picture General public through media market To save lives and to educate about natural world Government and international bodies To help first responders and market coordinators Consulting and solutions Education andoutreach Our coverage: Japan, USA, Italy, Taiwan, China, Turkey, Mexico, Indonesia, Philippines, New Zealand, Chile, Peru, Greece, Thailand, India, Pakistan, Australia, all European countries, etc. On demand services for your region. Location and Scenario analysis of 20 mega quakes expected in 2013- 2018 Terra Seismic’s product line 14 Today Next Day Alerts! Daily update of alerts for 1-2 days before events, with 10% false alarm - to save lives and assets! Tomorrow
  • 15 FOCUS: Short Term forecasting via our operational site Clients can purchase services at www.terraseismic.com Website gives you access to “Time Machine.” This service allows you to see our daily forecasts, like the one to the left for Peru. Specifically, we provide epicenter and radius, magnitude interval, and expiry date of alert. A Better Value of Risk The model is very good at capturing events, with some error. As you can see from right, we capture all types of seismic events. However, we are exceptionally good at capturing impact events, M6+ and above. Realized epicenter Terra Forecast Terra forecast – radius of area at risk
  • Based on high reputed scientist and their 20 years of peer reviewed work, we can offer two product that regularly update (every 6 months) areas at high risk of big magnitude event in next 3-5 years. Provides with 660Km radius of space for high risk of M8.0+ events. There have been 21 such events in last 28 years, this model has caught 16 of them, or more than 75% of these events! Technology A – “Diminishing Uncertainty” value Technology B – “Sure thing” value Provides radius of 330Kms for high risk of M7.5+ events with exceptionally low levels of false alarm, just over 7%! This means that when a forecast is issued, it will realize with 92% likelihood. Circles provide clear visualization of areas of risk. We also provide list of major landmarks at risk. FOCUS: Long Term forecasting technology 16
  • Dynamic Risk creates new opportunities and solutions for industry Present opportunities - strengthening investor side We have shown dynamic risk is indisputably real. It’s important that you find a method to input this into your risk assessment and loss estimation. If you are looking for a long term investment, you can re evaluate these with long term dynamic risk technologies – up to 5 years. Solution №1 Introduce Dynamic Risk notion in your short term decision making Solution №4 Re evaluate new issuances Solution №2 Arbitrage opportunities for Current Portfolio Re evaluation portfolio – You can use dynamic risk to recalculate expected loss of catastrophe bonds. This can then be evaluated amongst other assets and re allocation of portfolio can be made to maximize your returns. Solution №3 Other Hedging solutions If you cannot find a market for Cat Bonds, you can invest in positive catastrophe equity and mitigate cat bond losses before they occur. They are many positive opportunities such as equity that is involved in reconstruction – helping rebuild damaged societies. 17
  • Dynamic Risk creates new opportunities and solutions for industry Long term opportunities - strengthening market and creating new markets We provide confident forecasts for large geographic areas – splitting this risk up across time and space can limit expected loss and create new types of bonds that are marketable and relevant to areas of high risk. Positive earthquake fund can be created which allows you to easily trade equity across the globe in certain areas which will react positively to earthquake losses. Solution №5 New catastrophe bonds based on long(er) term dynamic risk Solution №6 positive impact across life indemnity Forecasting of earthquakes is primarily about saving lives. As our the technology becomes more precise and more known across seismically prone areas, people can take precautions to limit their own risks and therefore reduce life insurance losses after an event. Solution №7 Re invent short term complements to ILS cat e puts, sidecars, (ILW) Industry loss warranty contracts can be created based on short term dynamic risk, and thus allow for new markets of hedging ILS and other earthquake related losses 18
  • Terra’s Products Long term LevelofMarketPenetration ExclusivefirstclientsIndustryname Short term Opportunities on ILS and equity markets Arbitrage Opportunities for Issuance Catastrophe Linked Equity Index New ILS instruments based on our long term risk assessment Summary: Current and Future term Opportunities 19
  • 75 80 85 90 95 100 105 MCB Bank Ltd AICL Pa Insurance KSE All Stock HUBC PA Power OGDC PA Oil and Gas Theory to Practice: the Forecasted September 24th Pakistani Megaquake and subsequent Financial Market reaction 0 50000000 100000000 150000000 200000000 250000000 300000000 15000 15200 15400 15600 15800 16000 16200 16400 16600 16800 17000 17200 KSE All Stock – Before EQ Volume Last Price The KSE100 has experienced YTD returns of over 46%. The month of September was an equally good month, with strong growth and healthy activity. On 24th of September, a M7.7 earthquake struck the province of Balochistan, Pakistan. It was a local catastrophe, and Karachi Stock Exchange reacted (right) negatively. Energy, Insurance and Banking sectors fell drastically. Terra issued 3 alerts for this event, first one up to 25 days before the earthquake. With this information, It’s possible to hedge losses and improve your portfolio.
  • Terra Seismic Plc – we can create new Planet for Mankind Today’s Earth New Planet Terra Seismic Plc is a world leader in providing services for short, mid and long-term earthquake forecasts for 150 countries. The Terra team uses proprietary satellite-based technologies and unites leading international geoscientists with financial experts in developing novel solutions for the stakeholders of earthquake risk – 4.5 billion people. Where earthquakes strike suddenly, causing human loss and destroying livelihoods - such as 2011 Fukushima atomic plant disaster Where earthquakes happen, but societies are adequately prepared and material losses are efficiently insured
  • www.terraseismic.com Satellite Technologies and Global Internet System to reduce the risk and damage from earthquakes Terra Seismic is a High Tech Company that provides services for short, mid and long-term earthquake forecasts for 150 countries Selected Forecasted and Realized Earthquakes since March 2013 If you know the time and location of shortly forthcoming big earthquakes, preparation can substantially reduce human misery and losses. Insurers, Reinsurers, Risk officers, Asset Managers, Government Agencies and Large Multinationals can use this information to mitigate risks and avoid huge losses.
  • 23 Terra Seismic (Terra) global successful forecasts: an Overview Terra technology provides an early notification, 5-30 days in advance, for most of the global major earthquakes (EQs) Terra’s services for short to medium term forecasts of strong earthquake events are available for major seismic regions which include up to 150 countries around the world About 100-140 dangerous earthquakes (with Magnitude M>6) strike on our Planet annually. While Terra has capability to detect these, we wish to focus on the most potentially harmful. There are 25-40 countries where such EQs can bring a substantial loss of life and property. Major EQs in the coastal regions cause substantial damage through tsunamis. With certain confidence, Terra can identify an epicenter of an EQ and this can be used to prepare for different kinds of risk, including land and water. Today we are able to identify potentially dangerous EQs areas with radius of 150-200 km with average confidence interval of 55-70%. We are actively working on improving our forecasting capabilities. In the next few slides we present our recent forecasts, and their realization across major markets such as Japan, Italy, Mexico, Chile, Philippines and a few specific events that you might find interesting. Each slide gives you a set of columns with the date, magnitude, and location of the projected earthquake, followed by the same information about the actual EQ that occurred. The last column gives you the lag between our date and the actual date.
  • Date Time (UTC) General Location Latitude Longitude Mag range Day range 10.23.2013 16:00 Atacama-Chile 27.5S±2.0 71W±2.0 6.0+ 1-45 Behind the Scenes of recent Chilean Earthquake prediction, our www.terraseismic.com forecast: Date Time(UTC) Region Lat Long M Lag(days) 10.31.2013 23:03 Coquimbo, Chile 30.29S 71.57W 6.5 8
  • Date Time (UTC) General Location Latitude Longitude Mag range Day range 10.20.2013 14:00 Offshore Bio Bio Chile 36S±2.0 73W±2.0 6.0 1-40 Behind the Scenes of recent Chilean Earthquake prediction, our www.terraseismic.com forecast: Date Time(UTC) Region Lat Long M Lag(days) 10.30.2013 02:51 Off shore Maule, Chile 35.32S 73.02W 6.3 9
  • Date Time (UTC) General Location Latitude Longitude Mag range Day range 9.21.2013 19:36 Gulf of California 29N±2.0 113W±2.0 6.0 1-40 Behind the Scenes of recent Gulf of California Earthquake prediction, our forecast: Date of quake Time(UTC) Region Lat Long M Lag(days) 10.19.2013 17:54 Gulf of California 26.37N 110.37W 6.5 28
  • Date Time (UTC) General Location Latitude Longitude Mag range Day range 10.14.2013 16:03 Pakistan 27N±2.0 65E±2.0 6.5+ 1-40 Behind the Scenes of recent Series of Pakistan earthquakes Our Forecast: Date of quake Time(UTC) Region Lat Long M Lag(days) 10.18.2013 13:18 Pakistan 28.34N 66.56E 5.3 4 10.20.2013 5:11 Pakistan 27.31N 65.57E 4.5 6 10.20.2013 5:27 Pakistan 27.19N 65.87E 4.7 6 A forecast like above can occur as one event or several weaker events. For example, in the case of Pakistan, we see a series of earthquakes in the location of the above forecast during the exact time interval.
  • Date Time (UTC) General Location Latitude Longitude Mag range Day range 10.12.2013 14:00 Philippines 12N±2.0 125E±2.0 6.0+ 1-40 Behind the Scenes of recent Philippines Earthquake prediction Our Forecast: Date of quake Time(UTC) Region Lat Long M Lag(days) 10.15.2013 00:12 Philippines 9.93N 124.16E 7.1 3 Left - Screen shot from our Website showing area of alert issued 3 days before event (green)
  • Date Time (UTC) General Location Latitude Longitude Mag range Day range 10.12.2013 12:36 Southern Greece-Crete 34N±2.0 25E±2.0 5.0+ 1-30 Behind the Scenes of recent Crete Earthquake prediction Our Forecast: Date of quake Time(UTC) Region Lat Long M Lag(days) 10.12.2013 13:11 Greece 35.6N 23.3E 6.4 <1 Screen shot from our Website showing area of alert (green):
  • Behind the Scenes of recent Romania Earthquake prediction Our Forecast: Date General Location Latitude Longitude Mag range Day range 09.14.2013 Romania 45N±1.525E±1.5 6+ 1-30 Date of quake Time(UTC) Region Lat Long M Lag(days) 10.06.2013 1:37 Romania 45.6N 26.7E 5.3 20
  • Behind the Scenes of Gansu Earthquake Date of forecast: June 22nd 2013 Date of quake Time(UTC) Region Lat (±2.0) Long(±2.0) M Lag(days) 15.07.2013 14:02 Dominican Republic 19.3 -70,15 4,9 23 05.07.2013 0:53 Merida, Venezuela 8.84 70.93 4,6 13 21.07.2013 23:45 Gansu, China 34.52 104.23 6 29 06.07.2013 14:00 northern Sumatra: Indonesia 3.26 100.53 6 14 Date of forecast Time(UTC) Region Lat (±2.0) Long(±2.0) M Period(days) Level 22.06.2013 14:00 Haiti region 20 -72 5 1-30 beta 22.06.2013 14:00 Venezuela 10 -62 5,5+ 1-35 beta 22.06.2013 14:00 northern Sumatra: Indonesia 2 100 5 1-30 beta 22.06.2013 14:00 Sichuan-Gansu border region: China 32 105 6 1-35 beta
  • Some of the most serious quakes forecasted by Terra this year Gansu, China, July 21nd 2013
  • Terra’s Forecasting M7+ events 33