Catastrophe modelling firm AIR Worldwide (AIR) has received approval from Colombia’s insurance regulator to launch its integrated earthquake model for domestic insurance companies.
The new model is said to be the first to provide an integrated view of loss due to ground shaking, tsunami, and liquefaction and features new damage functions for high-value industrial facilities, builder’s risk, and public infrastructure.
Executive Vice President at AIR Worldwide, Rob Newbold, commented that with the new approval “local insurers can work directly with AIR Worldwide and obtain expert modeling services and direct access to the models to satisfy regulatory requirements while giving companies a distinct advantage in preparing for the next earthquake in the region.”
The AIR model approval comes after the Colombian government has worked for several years to develop policies that protect the solvency of the domestic insurance industry while making the reserving process more transparent.
And the model’s release and approval corresponds with requirements by the Colombian Ministry of Finance for companies to use an approved catastrophe model to calculate the maximum probable loss and pure risk premium associated with each company’s portfolio.
As with Solvency II, Colombia has adopted the best practice of tying reserve capital to an analytical measure of a company’s exposure to catastrophic loss from earthquakes.
Newbold commented that the new model could now be used throughout Colombia to; “better manage risk and satisfy regulatory requirements that base capital reserves on probabilistic loss estimates.”