Multi-hazard parametric catastrophe bond trigger design for subduction earthquakes and tsunamis

Abstract

This study presents trigger design methods and performance evaluations of multi-hazard parametric catastrophe bonds for mega-thrust subduction earthquakes and tsunamis. The catastrophe bonds serve as alternative disaster risk financing tools for insurers and reinsurers as well as municipalities and governments. Two types of parametric catastrophe bond trigger are investigated. A scenario-based method utilizes available earthquake source-based information, such as magnitude and location, whereas a station-intensity-based method can be implemented when seismic and tsunami hazard monitoring systems are in place in a region. The case study results, focusing on wooden buildings in Miyagi Prefecture, indicate that the station-intensity-based trigger methods outperform the scenario-based trigger methods significantly. Incorporating seismic and tsunami hazard information from multiple recording stations results in smaller trigger errors. The station-intensity-based methods are applicable to building portfolios at both municipality levels and regional levels.