Protection Structure
Catastrophe Bond

Prior to the creation of TREIP , earthquake insurance was provided as an endorsement to a long-term residential fire policy. Since April 1, 2002, all new residential fire policies have been issued on an annual (rather than long-term) basis, and have been changed to automatically cover earthquake risk. Existing long-term policies can also be voluntarily endorsed at any time to provide annual cover for the peril of earthquake.

The new policies provide indemnity on a replacement cost basis for buildings, with a maximum insured amount of NT$1,200,000. In addition, a further NT$180,000 of reimbursement is provided per household for Contingent Living Expenses. The annual flat premium per household is NT$1,459. For the small number of houses valued at less than NT$1,200,000, the premium is calculated on a pro-rata basis.

Insurers will provide payouts to an insured party only for: ] 1 ^ a damaged building that a government agency or civilian authority has declared is no longer fit for habitation F or ] 2 ^ the repair cost for a damaged building, where said cost is more than 50% of the replacement cost. The portfolio of TREIP derives from all relevant policies written by all insurers (incl. foreign insurers) in Taiwan , and all written premiums are fully ceded to Central Re, the administrator of TREIP. The insurers have to transmit the policy data to TREIP by Internet no later than the next working day after a policy is written.

TREIP has four tiers totaling NT$50 billion in capacity as follows:

1st Tier, with a limit of NT$2 billion, is retained as co-insurance by domestic insurers (including Central Re).
2. 2nd Tier, with a limit of NT$18 billion, is sustained by a non-profit organization called Taiwan Residential Earthquake Insurance Fund, and carries a government guarantee.
3. 3rd Tier, with a limit of NT$20 billion, is ceded to the domestic and overseas reinsurance market, and to capital markets by means of alternative risk transfer method (Cat Bond).
4. 4th Tier, in the amount of NT$10 billion, is wholly undertaken by the government.

The scheme caps losses at NT$50 billion. In the event that losses exceed the capped amount, the losses paid to policyholders will be scaled down.