Azerbaijan’s exposure and vulnerability to the earthquake risk, as well as the measures to cope with the financial impact of such events were the topics of the A Resilient Financial System Against Catastrophic Risks Conference, organized on 22-23 May, by the Central Bank of Azerbaijan and the Compulsory Insurance Bureau, with the participation of T-Rupt, a Türk Reasürans group company specializing in insurance and reinsurance technology solutions.

The conference, which covered topics such as Azerbaijan’s seismicity, the resilience of its structures against earthquakes, the scientific estimation methods for the financial loss Azerbaijan might face in potential earthquakes, and the financial measures that can be taken against these, saw significant contributions from earthquake engineers, geoscientists, and experienced executives from the financial sector of Türkiye and Azerbaijan.

Ziya Aliyev, General Manager responsible for the Insurance Supervision and Regulation Departments of the Central Bank of Azerbaijan, stated: “Recent natural disasters in regions close to our country, especially the severe earthquake in our neighbor, Türkiye, which caused extensive damage, have made it imperative to strengthen damage prevention policies further. The intensive development of residential and industrial facilities in our country requires a reliable assessment of the earthquake hazard level for settlements and construction sites. This situation is crucial for strengthening the country's defense capacity against emergencies and the damage they may cause. It is very valuable for us to benefit from the experience of Türkiye in this field.”

In her opening speech at the conference, Selva Eren, General Manager of Türk Reasürans, first thanked the Ministry of Emergency Situations of Azerbaijan for sending aid teams to Türkiye as quickly as possible after the earthquakes on February 6 and the Azerbaijani teams that worked in the earthquake zone for about a month. She stated: "One of our most important works is the catastrophe modeling platform CatMod, which we matured to become a comprehensive modeling solution at T-Rupt, a 100% subsidiary of Türk Reasürans. T-Rupt has developed the model, which we refer to as the ‘Türkiye Earthquake Model,’ by considering our country’s seismicity and the characteristics of our building stock. Following the February 6, 2023 Kahramanmaraş Earthquakes in Türkiye, thanks to this model, T-Rupt quickly realized the ‘event-based model’ of the tremors and estimated the damage amount resulting from them for the Turkish Catastrophe Insurance Pool (DASK) with high accuracy within ten days. We hope that Azerbaijan will also benefit from the catastrophe modeling platform CatMod that we developed using Türkiye’s human and technological capacity."

During his speech, T-Rupt General Manager Erdem Karabostan talked about the importance of catastrophe modeling for the insurance sector. He described the characteristics of a good earthquake model as one that yields explicable results that can justify themselves. He underlined that it is essential for an earthquake model to cater for local characteristics of seismicity, soil conditions, regional construction conventions and building vulnerabilities. He added that a good model is also one that is kept up to date by being calibrated in accordance with latest scientific findings and actual damage due to recent earthquakes. He went on to say “All these characteristics of a good model count. Ultimately, we, insurers would like to make our capital planning according to macro level assumptions, which are formed in accordance with scientific method and results. And we want to have consistency in and justification in the development of our decisions throughout the years. Most importantly, we would like to take correct decisions. Forasmuch as unrealistic and optimistic modeling results endanger our companies’ equities, and even existence. This is also a national issue, given that a strong insurance sector is one of the key elements of a country’s resilience against earthquakes.”

Azerbaijan is located in a region with high seismic activity and has been shaken by major earthquakes over the past 1500 years. Based on this fact, the conference highlighted the importance of estimating the financial impact, earthquake modeling, and measures to mitigate financial losses for potential future earthquakes in Azerbaijan. The conference saw participation from various public sector institutions, including ministries from Azerbaijan, as well as representatives from the financial sector, particularly from insurance and reinsurance companies. The event significantly contributed to enhancing the knowledge and addressing the questions of the scientific and financial communities in earthquake-prone regions, particularly in Türkiye and Azerbaijan.