Frequently Asked Questions
1. What is PERILS?
PERILS was launched as a result of an initiative by the Chief Risk Officer Forum. It has been established to aggregate and provide industry-wide European catastrophe insurance data.
2. Which products are offered by PERILS?
PERILS offers two principal products, which are:
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 trial license (45 days). PERILS industry loss indices are available per transaction and are tailor-made according to the specific needs of each particular user.
3. How are PERILS products used?
The Industry Exposure & Loss Database can be used for risk management analysis 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 ILS and ILW transactions.
PERILS exposure and loss data may only be used in conjunction with a valid PERILS license.
4. What are the fees involved?
The annual fee for the Industry Exposure & Loss Database depends on the user group and the granularity of the requested data. For the Industry Loss Index Service there is a fee based on the transaction limit: 10bps or a minimum of CHF 7’500 and a maximum cap.
5. What is the legal arrangement between the licensees and PERILS?
Access to the PERILS Industry Exposure & Loss Database can be purchased with the PERILS In-House License for in-house research only, or with 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 only needs to be signed once. For each transaction a simple Term Sheet is added to the GTL. Only one party involved in a transaction needs to be a licensee.
6. 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 a bill from PERILS. Who ultimately finances the fee is up to the parties involved in the transaction.
7. Who signs the license agreements?
The agreements can be signed by the licensee who can be either an insurer, a reinsurer, a broker, an investor, a modeller, etc. and by PERILS.
8. Won't some people just use the PERILS figure as a trigger when and if it is disclosed to the market?
It is clearly stated in our license agreement and on our website that the use of PERILS industry loss estimates in insurance risk transactions is subject to the GTL and a transaction-specific Terms Sheet.
9. Can you explain the methodology which PERILS uses to prepare the industry exposure and loss data?
After the data has been collected from the insurance companies, it is made anonymous and aggregated within the identical aggregation units before being extrapolated to industry level based on property premium.
10. What is PERILS´ overall market coverage and per country coverage?
As of September 2010, PERILS has received the consent of over 60 insurance companies across Europe to deliver data which gives an overall market coverage of approx. 50%.
Only 5% of all companies PERILS has approached so far have declined to support the initiative. This shows that the PERILS initiative is gaining rapid and solid support.
As contractually agreed with data providing companies and for competition regulation reasons, PERILS cannot disclose more precise coverage information for individual markets.
11. 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.
12. 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.
13. Is PERILS confident of its ability to produce high quality loss estimates based on the data currently available?
PERILS has achieved sufficient overall market coverage to come up with robust industry loss estimates. This has been proven with windstorms Klaus and Xynthia. Furthermore, market coverage is steadily growing.
14. 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 (windstorms Klaus and Xynthia). 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.
15. How many transactions have so far been placed based on PERILS loss estimates?
In the first eight months of 2010, the total placements of insurance risk transactions based on PERILS industry loss index exceeded USD 500m.
16. 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 risk management analysis tasks.
17. 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.
18. What is PERILS´ track record?
Since the launch of PERILS, there have been two qualifying events: windstorms “Klaus” and “Xynthia”. The high stability of PERILS´ initial loss estimates raises confidence in PERILS´ methodology.
In addition to the validation based on Klaus and Xynthia, PERILS is working on calculating loss estimates for other large historical European storm events. This will create a post-event track record.
19. How do PERILS loss estimates compare to actual insured losses?
PERIL estimates are based on actual losses. The higher the coverage percentage, the closer these estimates are to reality.
20. 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 index values are reported based on a fixed schedule which is contractually assured. Other index providers do not guarantee this (because they are not designed to be used as a trigger) and hence their loss estimates can be considered unsuitable for use in ILS or ILW transactions.
21. How can you ensure the independence of PERILS when large re/insurers are shareholders?
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 PERILS’ own interest.