Protecting consumers Promoting markets Enforcing law CATASTROPHE RISK MANAGEMENT IN ALBANIA Juliana DENGERI Actuary Albania FSA 05 - 07 June, 2015

Protecting consumers

Promoting markets

Enforcing law

CATASTROPHE RISK MANAGEMENT IN ALBANIA

Juliana DENGERIActuary

Albania FSA

05 - 07 June, 2015

PART I: ALBANIA INSURANCE MARKET

Insurance Market

A short history:

Based at a book written by an Englishman at 1904s, around of 1900s Lloyd`s had his branches in Shengjin, Durrres and Vlora, all naval cities;

Before 1944s had operated England, French and Italian insurance companies;

First Albanian insurance company was created after the second World War, at 1948s – Insurance State Institute;

At 1998 was licensed the first private Insurance company.


Insurance Market

Albania insurance market operate by:

Non life insurance company ( 7 companies);

Life insurance company ( 2 companies );

Mix of life and non life insurance company ( 1 company - Undertaking with state capital);

Reinsurance brokerage ( 1 company - Domestic and foreign stock company)


Insurance Market

Some of the insurance companies have foreign (Austrian) stocks. Market share, according to Capital Dominance is as follow:

Figure 1. Market Share according to Capital Dominance

Source: Insurance Market Supervision Report, available from the Internet sites: http://www.amf.gov.al


Insurance Market share The Albanian Insurance Market is focused almost at non life insurance activity, with

around 90% of the Gross Written Premium of the total market. With an average of around 57%, for the last 5 years, GWP is mostly concentrated at

Motor third party liability insurance contracts, that are mandatory product.

Figure 2.The distribution of the Gross Written Premiums (2010-2014)

Source: Author’s calculations on the basis of data available from the Internet sites: http://www.amf.gov.al


Property Insurance Contract and Catastrophe Risk Catastrophe risk coverage is included at “Fire and other damage to Property” insurance

contracts, and approximately 80% of this insurance contract are related to the banking system, as a requirement of banks during the credit application process;

Fire and other damage to property insurance contracts has a low penetration, only 2% (2 per 100 properties are insured) and are provided for: - Dwellings; - Business facilities;

- Farming cultures; Figure 3.The part of GWP Property insurance contracts toward of Total GWP (in%)

Source: Information available from the Albanian FSA Internet site: http://www.amf.gov.al


Reinsurance

Natural disasters risks are transferred to Reinsurance companies;

Reinsurance program for each financial year. It should be delivered at FSA no latter than 60 calendar days before the beginning of the new financial year;

Reinsurance program should contain and treat the following specifications:

Table of maximum coverage of the company for every insurance class. This table is drafted based on the company’s capital, statutory provisions and premiums for each class;

Procedures, bases and criteria of defining the highest probability of losses in relation to underwritten risks in insurance.

Rate of coverage with reinsurance agreed in advance.


Reinsurance

Reinsurance companies that will participate in reinsurance agreements shall meet the following criteria:

they must not be under a bankruptcy process;

they cannot have a lower rating than:

Figure 4. Criteria of reinsurance companies` selection

Source: Authors’ notes on the basis of FSA Regulation “On Reinsurance Criteria”, available from the Internet sites: http://www.amf.gov.al.


PART II: CATASTROPHE RISK MANAGEMENT IN ALBANIA

Catastrophe risk exposure

Some definitions of CAT Risk:

Enterprise risk management: Windstorm and other natural perils (including catastrophes) are classified as hazard risks;

Swiss Re: A catastrophe is an occurrence which claims more than 20 lives, badly injures more than 50 people, makes more than 2,000 people homeless or causes insured damage of over $29m or a total loss of over $457m;

From EM-DAT: The OFDA/CRED International Disaster Database, in order for a disaster to be entered into the database at least one of the following criteria has to be fulfilled:

10 or more people reported killed;100 people reported affected;a call for international assistance;declaration of a state of emergency.



Statistics and information taken from Albanian Civil Protection Service:

The mission of the Albanian Civil Protection Service is to strengthen Albania’s capacities to prevent, protect against, mitigate, respond to, and recover from the consequences of natural or man-made disasters.

Catastrophe risks of which Albania is exposed are:

Earthquakes; Landslides; Floods; Fires; Industrial Accidents; Epidemics; Extreme Weather.

The most recurrent disasters are major floods, which regularly occur, especially in the northeastern and southeastern regions of the country.



Exposure to Earthquake:

Albania is characterized by:

Intense micro earthquake (1.0<Md”3.0) activity; small (3.0<Md”5.0) activity; medium-sized (5.0<Md”7.0) earthquakes and only rarely by large (M>7.0) earthquake events.

During the twentieth century about 7% of shallow earthquake energy was generated by seismic sources autochthonous and allochthonous to Albanian territory.



Figure 5. 200 years return period scenario earthquake seismic hazard maps

Source: Information available from the Albanian Civil Protection Service Internet site: http://www.mbrojtjacivile.al



Based to the statistics published by Albanian Civil Protection Service, the emergencies cases happened between 19-21 Century are as follow:

Figure 6. Emergencies cases from Earthquake events

Source: Authors’ calculations on the basis of data available from the Internet sites: http://www.mbrojtjacivile.al



Exposure to Landslide:

Albania is characterized by massive land instabilities triggered by natural factors (mechanical action of surface and underground waters, precipitation, seismic action, physical and chemical conveyance, etc.) natural-anthropogenic;

Engineering interventions on slopes, construction of dams and large water retention reservoirs, and construction of roads, tunnels and other related infrastructure facilities are factors of typical anthropogenic origin.

Four broad groups of factors largely influence the stability of natural slopes:

regional and local geology;geomorphology; hydrogeology and climate; and vegetation and land cover.

No statistics for the emergency cases for Landslides risk exposure.


Catastrophe risk exposureFigure 7. Landslide hazard maps




Exposure to Floods:

The hydrographic basin of Albania:

Encompasses an area of 43,305 km2 of which 14,557 km2, belonging to the watersheds of the Drini and Vjosa rivers, are within the territories of Greece, Macedonia and Kosovo;

The primary surface water system of Albania comprises eight main rivers (Drini, Mati, Ishmi, Erzeni, Shkumbini, Semani, Vjosa, and Bistrica), their network of tributaries, parts of three large natural lakes (Shkoder, Ohrid, and Prespa) and numerous minor lakes and dam-reservoirs constructed along the main rivers.

The river system poses the highest flood risk to the country;

The floods are generally of pluvial origin and occur in the period November-March when the country receives about 80-85% of the annual precipitation. Due to topographic patterns, the floods occur suddenly, being transported through the main river hydrographic network for about 8-10 hours.


Catastrophe risk exposureFigure 8. Floods hazard maps




Based to the statistics published by Albanian Civil Protection Service, the emergencies cases happened between 19-21 Century are as follow:

11 big floods occurred in the period 1854-1871, each of them causing considerable damages;The floods of November 1962 – January1963 are considered the largest;On 31 December 1970 – 1 January 1971 the Vjosa river flooded app.14,000 hectares;September 2002 flood, caused by the river Erzeni and its tributary Osumi, and some smaller rivers like Drinosi, Gjanica, Gjadri, about 30,000 ha of agricultural land were flooded;2005 floods, in Gjirokastra, Vlora, and Fieri Qarks;On 01-02.05.2007, Vlora floodsIn December 2009-January 2010 in Shkodra and Lezha;In December 2010-January 2011 floods of Shkodra, Lezha and Durrës;March, 2013 floods of some communes in Shkodra.



Exposure to Fires:

Forests occupy roughly 36 percent of Albania; Forest areas can be divided into two basic functional categories:

productive forests (86 percent of the total area); and protected and recreational forests (14 percent).

The forests of Albania are prone to fire, especially at the end of spring and during dry summers.

Based at the Bulletin of Forest Fire risk in Albania, every year, around 1000 ha are affected by forest fires, from which about 500 ha are completely destroyed.

Based on the statistics published by the Albanian Civil Protection Service, the emergency cases happened during the period 1997 – 2012 include around 27,000 ha destroyed forests.



Exposure to Industrial Accidents:

Albania is well endowed with natural resources, such as oil, natural gas, coal, chromium, copper, timber, and nickel;

The copper industry consists of 10 main mines, four or five enrichment plants and two smelting plants;

Natural gas is extracted from 11 fields. The total length of pipelines for petroleum products is 174 km;

As a consequence of declining industrial activity, the industry and installed technological systems presently do not pose a significant technological risk to the population and material property of the country. However, a quantity of hazardous materials, substances, and products are still in stock;

No statistics for the emergency cases for Industrial Accidents risk exposure.



Exposure to Epidemics:

Since the 1950s Albania has undertaken significant efforts to maintain control of infectious diseases;

Infectious diseases are ranked in the 5th–6th place in the total mortality rates, with total morbidity rates steadily decreasing over time;

The incidence rate of infectious diseases preventable by vaccination is quite insignificant;

No statistics for the emergency cases for Epidemics risk exposure.



Exposure to Extreme Weather:

Snow precipitation is characteristic for inland mountainous regions, i.e. the Albanian Alps, and the central and southern mountainous regions. It is a rare phenomenon in the West Plain lowlands, in particular in the southwestern part of the Albanian coast;

In mountainous regions the snowfall usually begins in November and lasts until late March;

Albania is characterized by a high inclination of hillside slopes (>30%), poor forest vegetation in many regions, and intense winter snowfalls. Combined, these conditions are favorable for the occurrence of avalanches that, due to demographic patterns of the country, are often accompanied by property damages.

No statistics for the emergency cases for Extreme Weather risk exposure.



Statistics and information taken from EM-DAT: OFDA-CRED International Disaster Database :

Based on the information of the OFDA/CRED International Disaster Database, during the period from 1900 to2015, Albania is exposed to:

i. Natural disasters (with 80% of total occurred events). The statistics by disaster type, occurred during the period 1900 – 2015 are as follows:

Figure 9.Natural disasters statistics (1900 – 2015)

Source: Data available from the Internet sites: http://www.emdat.be


Disaster type Disaster subtype Events count Total deaths Total affected Total damage ('000 US$)Drought Drought 1 - 3,200,000 - Earthquake Ground movement 6 47 8,429 -

Epidemic Viral disease 1 7 66 - Extreme temperature Severe winter co 2 73 237,085 - Extreme temperature Heat wave 2 3 150 -

Flood Flash flood 1 11 35,000 7,000 Flood Coastal flood 1 - 8,000 -

Flood Riverine flood 6 4 92,484 17,673 Flood -- 2 4 1,726 -

Landslide Landslide 1 57 26 - Storm Convective storm 2 8 525,000 -

Wildfire Forest fire 1 - 75 -

Total: 26 214 4,108,041 24,673



Based on the above statistics, specific weights of disaster types by event count and the number of total deathsare as follow:

Figure 10.Specific weights of disaster types by event count Figure 11.Specific weights of disaster types by no. of deaths

Source: Authors’ calculations on the basis of data available from the Internet sites:http://www.emdat.be




ii. Technological disasters (with 20% of total occurred events). The statistics by disaster type, occurred during the period 1900 – 2015 are as follows:

Figure 12.Technological disasters statistics (1900 – 2015)

Source: Data available from the Internet sites: http://www.emdat.be

Explanation: based on the statistical data on Albanian Civil Protection Service (where even it has gaps in providing statistics on the catastrophic events occurred in Albania), OFDA/CRED International Disaster Database does not contain full information on thecatastrophic events occurred during the years in Albania. These data can be used only to create an idea related to the AlbaniansCatastrophic exposure.


Disaster type Disaster subtype Events count Total deaths Total affectedIndustrial accident Fire 1 60 - Miscellaneous accident Explosion 1 22 10,300 Transport accident Water 1 16 - Transport accident Road 3 42 57

6 140 10,357 Total:

Catastrophe risk management in Albania

Actual situation:

Catastrophe risk insurance is not a mandatory insurance;

No data quality, no software packages for Catastrophe Risk modeling;

Measurement and evaluation only on the aggregate damages in a certain area (city) and not by a micro model (for each insured property);

Catastrophe natural risks are covered by risk transfer to the reinsurance companies;

By the Albanian Insurance law, risk retention (known as the maximum coverage of an insurance company) for every insured risk may not be more than 10 percent of the level of capital (that is related to the insurance company’s solvency).

In case of disaster insurance coverage, FSA oversees and monitors if insurance companies have:

Adequate capital, which implies its solvency; Good coverage in a reinsurance agreement, is to have a good reinsurance program and qualitative reinsurance companies, according to the evaluation by rating agencies.


Catastrophe risk management in Albania

Scope for the future:

Some solutions and needed actions for the future, can be:

Using Catastrophe modelling by computer techniques;

Risk transfer for catastrophe risk financing using financial products supplied by capital markets, such as Catastrophe Bond;

Reducing territorial exposure to certain classes;

The Catastrophe Insurance pool (like Turkish case);

Be determined the Catastrophe risk insurance as a mandatory insurance.

Catastrophe plans are necessary before the catastrophe risk takes place.


Disaster risk financing and insuranceis a long-term agenda and this processrequire political will, time and technical expertise.

If exist something certain in the world, it is uncertainty!

THANK YOU!

Documents

Protecting consumers Promoting markets Enforcing law CATASTROPHE RISK MANAGEMENT IN ALBANIA Juliana DENGERI Actuary Albania FSA 05 - 07 June, 2015