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Caribbean Catastrophe Risk Insurance Initiative. Olivier Mahul Program Manager, Insurance for the Poor, World Bank Coordinator, World Bank Catastrophic Risk Insurance Working Group - PowerPoint PPT Presentation
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World Bank GroupWorld Bank Group
Caribbean Catastrophe Risk Insurance Initiative
Olivier MahulProgram Manager, Insurance for the Poor, World BankCoordinator, World Bank Catastrophic Risk Insurance Working Group
Expert Meeting on Requirements of the Catastrophe Insurance and Weather Risk Management Markets for National Meteorological and Hydrological ServicesDecember 5-7, 2007, WMO Headquarters, Geneva Switzerland
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The Caribbean Catastrophe Risk Insurance Facility
The Problem After a catastrophe event governments need money quickly to
provide emergency relief and early rehabilitation and keep services running
But aid only arrives slowly, often months later Traditional insurance requires proof of loss – again causing
timing delaysThe Solution
A Facility to provide immediate post-loss liquidity to Caribbean
Insurance but based upon defined events allowing rapid payment
Caribbean wide to allow benefits of diversification Protected by international reinsurance and capital markets to
give stability Backed by donor contribution to guarantee sustainability
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Necessary conditions for the emergence and long-term viability
Simple instrument Tailored to a specific need Good financial engineering Transparent disbursement rules
Political economy One off donor intervention No cross subsidization Peer pressure among countries Local ownership Win-Win-Win deal between clients, donors and
reinsurers
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Country-specific risk modeling
Portfolio of Risk Exposures Portfolio of Risk Exposures for Wind & Storm Surgefor Wind & Storm Surge
Historical Wind Track DataHistorical Wind Track Data
VulnerabilityVulnerability
WindWind HazardHazard
Damage and Financial LossDamage and Financial Loss
Storm Surge HazardStorm Surge Hazard
5544332211
TSTS
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From parametric insurance…
“Quake in a box” – Tokyo Marine-1997 and Concentric Ltd (Tokyo Disneyland) 1999
Payoff based on earthquake magnitude > Magnitude occurring within a region defined by boxes or circles
Parametric Re Concentric Ltd.
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To parametric index insurance
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Hurricane path and calculated wind speeds
* 2 Capital
(130 MPH)
•1 Port and manufacturing
( 125 MPH)* 3 Tourism
(95 MPH)
* 4 Tourism
( 145 MPH)
Calculation Location
Weight Event Gust Windspeed
V-30 (v-30 )^4 X Weight
1 0.3 125 95 81450625 24,435,188 2 0.2 130 100 100000000 20,000,000 3 0.4 95 65 17850625 7,140,250 4 0.1 145 115 174900625 17,490,063
Sum 69,065,500 x 0.00005502
Event Index 3,800
Event Loss (3,800-2000)/(4,000-2,000) =0.9Contract Amount $40 million
Payment $36 Million
Obtain Hurricane parameters from the National Hurricane Center
Calculate wind speed at each of the four locations
Calculate wind index at each location Sum the four values to calculate event index Loss recovery = ((Event Index-
attachment)/Layer) * contract amount
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Designing Hurricane Loss Index
Index calculation locations and weights for Jamaica
Loss deficit curve for Jamaica
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Catastrophe Insurance Pool
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CCRIF risk financing capacity
Retention
Reinsurance
Reinsurance Cat swap
5 years
25 years
>1000 years
Return period
Reinsurance
10 years
US$10 MM
US$50 MM
US$120 MM
US$25 MM
0
20
40
60
80
100
120
0 100 200 300 400 500 600 700 800 900 1000
Return period (years)
US
$ m
illion
Hurricane
EQ
TOTAL
2007-08 CCRIF Portfolio - Loss Exceedance Curve
The CCRIF can sustain a 1-in-1000 year adverse event
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Hurricane Dean: The first test for the CCRIF
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CCRIF - Next steps
Product refinementLowering the minimum hurricane
attachment point for a 20 year RP to a 10-15 year RP
New coverage under investigationFlood coverageAgricultural parametric insurance
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Next Steps: Pacific Catastrophic Risk Pool
Request from the Pacific island states Challenges
Technical challenges Data collection (perils and assets)
Catastrophic risk modeling Simple instrument tailored to specific
needs Operational challenges
Governance structure Management structure Legal structure
Financial challenges Competitive pricing through a cost-
effective combination of collective reserves and reinsurance
Pricing reflecting country-specific risk profile
Sustainable risk financing strategy Institutional challenges
One off donor intervention Peer pressure among participating
countries Local ownership Interest for all the parties
(clients/donors/reinsurance industry)
Southern Hemisphere Tracks by Cat(1877 -2006)
0 (703)1 (117)2 (38)3 (46)4 (42)5 (14)
