Effect of earthquake sequences on risk-based catastrophe bond pricing.

Catastrophe bonds (cat bond in short) are an alternative risk-transfer instrument used to transfer peril-specific financial risk from governments, financial institutions, or (re)insurers, to the capital market. Current approaches for cat bond pricing are calibrated on seismic mainshocks, and thus do not account for potential effects induced by earthquake sequences. This simplifying assumption implies that damage arises from mainshocks only, while aftershocks yield no damage. Postearthquake field surveys reveal that this assumption is inaccurate. For example, in the 2011 Christchurch Earthquake sequence and 2016-2017 Central Italy Earthquake sequence, aftershocks were responsible for higher economic losses when compared to those caused by mainshocks. This article proposes a time-dependent aggregate loss model that takes into account seismicity clustering and damage accumulation effects in the computation of damage. The model is calibrated on the seismic events recorded during the recent 2016-2017 Central Italy Earthquake sequence. Furthermore, the effects of earthquake sequence on cat bond pricing is explored by implementing the proposed model on five Italian municipalities. The investigation showed that neglecting time-dependency may lead to higher difference (up to 45%) in the cat bond price when compared to standard approaches.

Seismic risk assessment and hotspots prioritization: a developing country perspective.

Natural disasters pose a negative impact not only on human lives but also on infrastructures such as healthcare systems, supply chains, logistics, manufacturing, and service industries. The frequency of such calamities has grown over time, which not only poses a threat to human survival and the living environment but is also detrimental to the economic growth and sustainable development of society. Earthquakes cause the most destruction compared to other natural disasters, especially in developing countries where the conventional reactive approach to dealing with disasters gives less chance for the appropriate utilization of already limited resources. Additionally, mismanagement of the resources and the lack of a unified action plan hinder the purpose of helping the grieving population. Considering the foregoing, this study presents a methodology for identifying hotspots and helping prioritize pre- and post-disaster management action by conducting a thorough seismic risk assessment while taking into consideration the case of a developing country as its focus. This methodology allows for rapid risk assessment against any given scenario by providing quantitative estimates of the repercussions such as physical damage to the buildings, casualties including injuries, economic losses, displaced households, debris, shelter requirements, and hospital functionality. In short, it could help prioritize actions with greater impacts and serve as a foundation for the formulation of policies and plans intended to increase the resilience of a resource-constrained community. Thus, the findings can be utilized by government agencies, emergency management organizations, non-government organizations, and aiding countries as a decision support tool.