Risk Frontiers was approached by a leading Australian investment fund manager. This fund manager needed quantitative intelligence on a property funds’ exposure to natural catastrophes with a particular focus on the probability of assets in Queensland and Western Australia being impacted by a single cyclone or flooding event. The risk-return equation was the need to buy adequate insurance coverage against additional costs associated with purchasing a large insurance limit on the international wholesale market which would have reduced the funds risk-adjusted return.
Risk Frontiers conducted detailed catastrophe loss analysis at the individual location level for the entire commercial property portfolio and were able to deliver the following recommendations to our client:
- No locations in the portfolio had significant bushfire exposure
- The current flood insurance limit provides adequate cover and is never exceeded for property damage
- The policy limit is exceeded for tropical cyclone at very remote return periods and it is highly unlikely that any two properties would experience total losses in a single cyclone event
As a result of this analysis, the client was able to make an informed decision on portfolio management and save significant money on insurance premiums due to not over-purchasing unnecessary insurance coverage for property damage from a single catastrophe event.