The Colombian government has worked for several years to develop new policies that protect the solvency of the domestic insurance industry while making the reserving process more transparent. 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. With the passing of several regulatory decrees, the Colombian Ministry of Finance and the Superintendencia Financiera require companies to use an approved catastrophe model to calculate the maximum probable loss and pure risk premium associated with each company’s portfolio.
“With this 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,” said Rob Newbold, executive vice president at AIR Worldwide.
Insurers will be able to take advantage of AIR’s recently updated model for Colombia, which incorporates the latest scientific data and is the first to provide an integrated view of loss due to ground shaking, tsunami, and liquefaction. The model features new damage functions for high-value industrial facilities, builder’s risk, and public infrastructure to provide a comprehensive view of risk, and it allows for the remodeling of historical events such as the 1999 earthquake that caused significant damage to the city of Armenia in Colombia’s coffee growing region.
“To continue to protect the strong growth of South America’s insurance markets, regulators are largely moving to establish model-based capital requirements more reflective of the actual risk faced by the region,” continued Newbold. “AIR’s innovative approach to modeling earthquake risk in South America has now been approved by two regional regulators, having been first approved by the Peruvian insurance regulator, Superintendencia de Banca y Seguros (SBS), in December of 2015. The AIR model can now be used in Colombia to better manage risk and satisfy regulatory requirements that base capital reserves on probabilistic loss estimates.”
About AIR Worldwide
AIR Worldwide (AIR) provides catastrophe risk modeling solutions that make individuals, businesses, and society more resilient. AIR founded the catastrophe modeling industry in 1987, and today models the risk from natural catastrophes, terrorism, cyber attacks, and pandemics globally. Insurance, reinsurance, financial, corporate, and government clients rely on AIR’s advanced science, software, and consulting services for catastrophe risk management, insurance-linked securities, site-specific engineering analyses, and agricultural risk management. AIR Worldwide, a Verisk Analytics (Nasdaq:VRSK) business, is headquartered in Boston with additional offices in North America, Europe, and Asia. For more information, please visit www.air-worldwide.com.