Category: Parametric insurance · Reviewed by Amy Price, Account Executive · Last reviewed 2026-06-10
Parametric earthquake insurance is a class of parametric cover under which the trigger is the occurrence of an earthquake of defined intensity at a defined location, measured by an independent seismological agency. It is one of the longest-established parametric forms and is used both in sovereign disaster financing — notably by the Caribbean Catastrophe Risk Insurance Facility — and in corporate property and captive programmes for exposures in seismically active regions.
Category: Parametric insurance Also known as: Parametric quake, earthquake index cover, seismic parametric Established / Coined: Modern form from the late 1990s; CCRIF parametric earthquake cover from 2007 Related concepts: Parametric insurance, Trigger event parametric, Catastrophe bond, Index-based insurance
A parametric earthquake contract typically uses one or more of the following triggers: moment magnitude (Mw) at the epicentre; peak ground acceleration (PGA) at one or more defined stations; modified Mercalli intensity (MMI) at the insured site; or modelled loss output from a reference catastrophe model. The principal data sources are the United States Geological Survey (USGS) National Earthquake Information Center, the British Geological Survey (BGS) for UK risks, and national seismological services such as the Japan Meteorological Agency, the Geophysical Service of Russia and INGV for Italy.
Contracts are typically structured on a “cat-in-a-box” basis: an earthquake of magnitude X or greater, with epicentre within polygon Y, triggers a payment of Z. Multi-tier triggers pay different sums at different magnitude bands.
In the UK, parametric earthquake insurance is treated as insurance for FSMA 2000 (Regulated Activities) Order 2001 purposes where insurable interest under Marine Insurance Act 1906 s.4 is present and the St Christopher test ([1974] 1 WLR 99) is satisfied. The EIOPA Discussion Paper on parametric insurance (June 2023) addresses earthquake parametric specifically as an example of “physical-event” parametric where regulatory treatment is well established.
PRA SS5/16 governs the prudential capital treatment under Solvency II internal models. For Lloyd’s syndicates writing parametric earthquake the contract is reported under the relevant Lloyd’s Risk Code (typically “P” for property catastrophe) and capital is set with reference to the syndicate’s internal model. The Lloyd’s Realistic Disaster Scenarios programme includes earthquake scenarios that capture parametric exposures.
A parametric earthquake contract written in the London market typically references the USGS ANSS Comprehensive Catalog for North American and global risks, or the relevant national service. The contract specifies: the polygon (defined by latitude/longitude coordinates); the magnitude threshold; the depth band (since deep earthquakes cause less damage than shallow ones); the timing of measurement; and the dispute mechanism. Settlement is usually within 14-30 days of USGS publication of the final event parameters.
For corporate property accounts, parametric earthquake is often written as a “drop-down” beneath a traditional indemnity tower: the parametric layer pays cash within weeks for business continuity, while the indemnity tower responds for adjusted losses over months or years. CCRIF, by contrast, operates a modelled-loss trigger using the SPHERA platform (KCC) for member-state sovereign covers.
Variations include multi-trigger structures (magnitude + cat-in-a-box + intensity), modelled-loss triggers, and hybrid contracts combining parametric and indemnity layers. The growth of corporate captive use post-2018 has seen parametric earthquake written into Bermuda, Guernsey and Isle of Man captives as a reinsurance to the captive of its parent’s gap-fill needs. ILS structures such as Pacific Re’s California earthquake bonds and CCRIF SPC’s Cayman segregated portfolios use parametric earthquake triggers.
A multinational technology company with a major data centre in Tokyo purchases a parametric earthquake contract through its Bermuda captive, reinsured into a Lloyd’s syndicate via a London broker. The trigger is a Japan Meteorological Agency-reported earthquake of Mw 6.5 or greater with epicentre within 50 km of the Tokyo site, paying USD 25 million. Settlement is within 21 days of JMA’s final magnitude determination. The captive board approves the contract recording that it provides liquidity for business continuity ahead of traditional indemnity recoveries.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-10. Next review: 2026-12-10.
Apex Insurance Brokers Limited. Authorised and regulated by the Financial Conduct Authority, FRN 724952. Registered in England and Wales, Companies House 07014570. This entry provides general information about UK insurance concepts and is not regulated advice. Consult your insurance broker on your specific position.
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