Frequently Asked Questions
1. What is PERILS?
PERILS AG is an independent reporting agency and was launched as a result of an initiative by the Chief Risk Officer Forum.
2. Why PERILS?
PERILS has been established to aggregate and provide industry-wide catastrophe insurance data in order to increase the understanding and data availability of catastrophe risk.
3. Which products are offered by PERILS?
PERILS offers two principal products covering European Windstorm, UK Flood and Italy Earthquake and Flood.
1. The PERILS Industry Exposure & Loss Database
2. The PERILS Industry Loss Index Service
Access to the PERILS Industry Exposure & Loss Database is available via an annual subscription or a free trial license (45 days). PERILS industry loss indices are reported per insurance risk transaction and can be tailor-made according to the specific needs of each particular user.
4. How are PERILS products used?
The Industry Exposure & Loss Database can be used for market share analysis (based on sums insured or losses) and risk management purposes such as model validation, scenario calculations, design of adequate protection, design of tailor-made event loss indices, analysis of basis risk etc.
The Industry Loss Index Service can be used as a trigger for Insurance-Linked Securities (ILS), Industry Loss Warranty transactions (ILW) and insurance derivatives such as swap transactions.The geographical and LoB resolution of the loss data allow the definition of tailor-made loss indices leading to a significant reduction of basis risk, be it for ILS or ILW transactions.
Both PERILS products may only be used in conjunction with a valid PERILS license.
5. Can you explain the methodology which PERILS uses to prepare the industry exposure and loss data?
After the data has been collected from insurance companies, standardized validation and quality tests are performed. The data is then made anonymous and aggregated within the identical aggregation units before being extrapolated to industry level based on property premium.
6. In which currencies does PERILS collect and report exposure and loss data?
PERILS collects exposure and loss data in local currencies (EUR, GBP, CHF, SEK, NOK, DKK).
7. How would PERILS treat the data from a country that leaves the Euro?
In the case that one of the countries covered by PERILS that is currently using the Euro (Benelux states, France, Germany, Ireland) should abandon the Euro monetary union and no longer use the Euro, but another currency, market exchange rates for the newly adopted currency to the EUR and USD will be applied, using identical data sources and conversion dates as described in the answer to question #6. If these are not available for the dates described under the answer to question #6, exit exchange rates as made available by independent sources, such as relevant Central Banks or Oanda, will be applied.
8. What is PERILS contingency plan should the Euro cease to exist?
For outstanding transactions using PERILS data in Euro, in the event the Euro ceases to exist and is not traded anymore, PERILS would continue to report data in Euro, using exit exchange rates as made available by independent sources, such as relevant Central Banks or Oanda.
9. Which companies are providing exposure and loss information?
As contractually agreed with data providing companies, PERILS cannot comment on individual companies. But PERILS confirms that data providers encompass the entire range of companies, from small, local operations, to large, international organisations.
10. What is PERILS´ overall and coverage per country?
11. What is PERILS´ track record?
Since the launch of PERILS, there have been four qualifying windstorm events: “Klaus”, “Xynthia”, “Joachim” and “Andrea”. The high stability of the loss estimates for all events over the reporting period is strong evidence of the robustness of the PERILS´ methodology.
PERILS has also calculated estimates of industry losses for five major storm events in Europe since 1999. The storms are Anatol (1999), Lothar (1999), Martin (1999), Jeanett (2002) and Kyrill (2007). These industry loss estimates contribute to an extended event loss track record and confirm the robustness of the PERILS methodology.
In addition, PERILS collected event loss data and produced industry losses for the earthquake events from 20 and 29 May 2012 which occurred in Italy’s Emilia-Romagna region.
12. What is the content of the Industry Exposure Database?
The Industry Exposure Database contains market-wide property sums insured for the following twelve countries: Belgium, Denmark (including Jutland, Sjælland, Fyn, Lolland, and Bornholm, and the Faroe Islands), Mainland metropolitan France and Corsica (excluding Départements d’Outre Mer and Territoires d’Outre Mer), Germany, Ireland, Italy, Luxembourg, the Netherlands (excluding Aruba and the Netherlands Antilles), Norway (excluding Jan Mayen), Sweden, Switzerland and the United Kingdom (Great Britain and Northern Ireland, excluding overseas dependencies but including the Isle of Man and Channel Islands).
Granularity is per CRESTA zone, property occupancy type (residential, commercial, industrial, agricultural; where available) and coverage type level (content, building, business interruption; where available).
13. How often is the Industry Exposure Database updated?
The Exposure Database is updated annually on 1 April.
14. How often are event losses reported?
PERILS event losses are reported according to a fixed timetable. The first loss report is made available after six weeks of the event. This is followed by event loss updates after 3, 6, and 12 months of the event.
15. How can PERILS assure that the loss index is accurate?
Most importantly, PERILS has very solid data validation tests in place. These are designed to ensure that no inaccurate data enters the loss estimation process. Secondly, the loss estimation process is standardised and tested. And thirdly, PERILS cross-checks all event loss estimates against other competent sources. This approach ensures the highest possible degree of accuracy and realism in loss estimates.
16. Does PERILS cover flood losses?
For windstorm events, PERILS covers all losses arising from a windstorm insofar as such losses are covered by the underlying insurance policy. In the UK, where flood losses following a windstorm (e.g. storm surge) are usually covered together with the windstorm losses, PERILS therefore captures these losses in a combined manner. In Germany, flood coverage is less common and usually not included in wind coverage.
Separate from European windstorms, PERILS also covers inland flood events in the UK and in Italy.
In the UK the peril of inland flood encompasses rain-induced floods such as river floods, surface-water floods, flash floods, and ensuing perils such as mudflows, dam breaks, groundwater raise etc. Storm surge (coastal flood) losses are however not included in the UK inland flood loss data.
In Italy PERILS captures flood events defined as “Alluvioni, Inondazione” which generally include flooding caused by water leaving its usual watercourses. Atmospheric events (“Eventi Atmosferici”) such as wind or hail are excluded.
17. How do PERILS distinguish losses between different European Windstorms or UK Flood events that occur relatively close to each other in similar geographic areas?
PERILS, in its professional judgment and sole discretion, identifies and designates an event start and end date to each natural catastrophe as well as a unique PERILS event identification number. In making these judgments, PERILS considers factors such as objective scientific data, event identification by governmental or scientific authorities, as well as information received from the data providing insurance companies.
PERILS also determines, in its sole discretion, whether various insured losses occurring close in time to one another are to be considered the result of a single event or multiple (and separate) events. For example, in making this judgment with respect to European windstorm, PERILS typically aggregates insured loss data by reference to the names assigned to such storms by the Institute of Meteorology at the Free University of Berlin, Germany. In determining whether one or more events have occurred, PERILS may also consider factors such as the inability on the part of insurance companies to distinguish the damage caused by the various events.
18. How do PERILS loss estimates compare with loss estimates of other sources?
Loss estimates for windstorms Klaus, Xynthia, Kyrill, Jeanett, Martin, Lothar and Anatol show excellent alignment with loss estimates from other sources such as National Insurance Associations.
19. What are the advantages which PERILS has over other index providers?
PERILS´ most important advantage is its independence. PERILS is neither a risk taker nor an intermediary and hence does not have any potential conflict of interest when making loss estimates. Another advantage is that the PERILS index is not modelled but based on actual reported losses, on a bottom-up approach.
In addition, PERILS loss estimates are based on a very clear definition (geographical scope, LoB covered, FX rates used) while other indices can have varying underlying definitions. And finally, PERILS loss reports are produced based on a contractually assured and pre-defined reporting schedule.
20. How many transactions have so far been placed based on PERILS loss estimates?
During the period from January 2010 to April 2013, more than 100 insurance risk transactions based on PERILS industry loss index have been completed representing a total risk capacity of more than USD 6.5bn.
21. What is the legal arrangement between the licensees and PERILS?
Access to the PERILS Industry Exposure & Loss Database can be gained by purchasing the PERILS In-House License for in-house research, or the PERILS Consultant License for in-house use as well as third-party services using PERILS data.
The PERILS Industry Loss Index Service requires a General Trading License Agreement (GTL) which serves as a continuous master agreement and which needs to be signed only once. For each transaction a simple Term Sheet is added to the GTL. Just one party involved in a transaction needs to be a licensee.
22. What are the fees involved?
The annual fee for the Industry Exposure & Loss Database depends on the user group and the territories covered. For the Industry Loss Index Service there is a fee based on the transaction limit: 10bps with various fee cap mechanisms in place.
23. How is the transaction fee levied and on whom?
Only one party involved in the transaction needs to be a licensee and hence pay the fee. The GTL licensee receives an invoice from PERILS. Who ultimately finances the fee is up to the parties involved in the transaction.
24. How do you assure transparency?
PERILS strives for full transparency while always respecting the confidentiality agreements with our data providers as well as competition and antitrust regulations.
25. In what ways does PERILS differ from PCS?
Property Claims Service (PCS) is an organisation with a similar purpose and mission, with a focus on the US.
However, in addition to the loss information, PERILS also shares the underlying exposure information. This allows PERILS subscribers to perform a variety of market analysis and risk management tasks.
26. In what way does PERILS differ from risk modellers?
PERILS is not a risk modeller. Industry loss estimates from PERILS are based purely on reported loss data (and its extrapolation) per risk class, country and Cresta zone. PERILS´ loss estimates are not based on, for example, wind speed or vulnerability assumptions.
27. Can you provide more information about PERILS’ role in making Satellite Flood Footprints available?
During a 12-month pilot phase PERILS will make footprints available for significant flood events. These footprints, which can be downloaded from www.perils.org/web/products/earth-observation, will show which areas have been flooded and can be used to facilitate rapid loss impact assessments. They will also help promote a better understanding of flood risk and ultimately help to expand the range of flood insurance solutions.
The project is a joint effort involving the European Space Agency, earth observation service providers and the insurance industry, with PERILS acting as a distribution platform.
This new offering fits perfectly with PERILS' overall strategy to provide ready-to-use data to the insurance industry to help improve the understanding of Nat Cat risk.
28. How can you ensure the independence of PERILS?
This is ensured with very strict company regulations which are acknowledged by the European Competition Commission and national competition authorities. In addition, PERILS has a purpose-built IT system which ensures that data access is restricted. Independence is a core component of PERILS and the protection of this independence is in its own interest.
Updated in May 2013