No abstract

Given that the losses incurred from natural disasters are uncertain and characterized by considerable fluctuation, restoration funds intended for disaster preparation are usually calculated based on the assumption of probable maximum loss (PML). However, preparing for PML via the acquisition of sufficient funding is difficult for railway companies that suffer from financial difficulties. These companies urgently need to implement risk financing (RF) strategies against frequent storm and flood disasters to avoid insolvency. Meanwhile, there is also a great need for an analysis of storm and flood disaster RF with targeting multiple railway businesses for reasons of group insurance or consolidated accounting. To address these issues, this study develop a financial risk model that considers the disaster-related characteristics and financial conditions of multiple railway businesses and establish a ruin probability model for the mathematical analysis of the procurement of funds, including initial reserves, insurance money, and subsidy. These models are designed to help multiple railway businesses prepare for losses estimated on the grounds of data on past damages. Case studies that feature actual data on railway companies across Japan are conducted to demonstrate and verify the effectiveness of the proposed models.

The storm and flood disasters account for 90% of the disasters that have led to the abolishment of railways in Japan. Such disasters are an overwhelming risk factor for many railway businesses in this country. Because the numbers of storm and flooding disasters have increased and intensified globally due to climate change, the importance of storm and flooding disaster risk financing (RF) has increased in many railway businesses. In this context, based on the Cramér-Lundberg model of disaster characteristics and financial conditions, this study proposes convenient approximation techniques to determine ruin probability and additional procurable funds, which are vital in storm and flooding disaster RF. Specifically, we present six theoretical approximation formulas of ruin probability and additional procurable funds, which meet the technical requirements (i.e., conservativeness, approximation accuracies, and domain) for practical work in RF. The technical requirements of these theoretical approximation formulas are evaluated using actual data collected in railway companies across Japan. The convenient usage of these formulas is also evaluated.