Upload
penha
View
39
Download
0
Tags:
Embed Size (px)
DESCRIPTION
CCRIF – what it is and how/why it works. Matthew Pragnell CEO, CGM Gallagher Group Director, Caribbean Risk Managers Ltd (Facility Supervisor) [email protected] Regional Workshop: How can Governments better cope with climate risk in agriculture. Queretaro – 9 th October 2008. - PowerPoint PPT Presentation
Citation preview
CCRIF – what it is and how/why it works
Matthew Pragnell
CEO, CGM Gallagher Group
Director, Caribbean Risk Managers Ltd
(Facility Supervisor)[email protected]
Regional Workshop: How can Governments better cope with climate risk in agriculture.
Queretaro – 9th October 2008
1
Background
• CARICOM Heads of Government asked the World Bank to design and implement a cost-effective risk transfer programme
• They were prompted by the almost 200% of GDP damage inflicted on both Grenada and the Cayman Islands by Hurricane Ivan in 2004
• All parties identified the high exposure to natural hazards that existed across the region to the small island economies, and the consequential risk to sustainable development
2
Hurricane Ivan
3
Aims of CCRIF
• To cover the post-disaster liquidity gap faced by governments between immediate emergency aid and long-term redevelopment assistance
• To enable governments to receive money quickly, with the amount calculated completely objectively
• To minimise the burden on governments to provide exposure information prior to coverage being initiated and loss information after a disaster
4
How CCRIF was put together
• Japanese government funded the development project through the Jamaica Social Investment Fund (~US$ 1.6 million in development budget)
• WB provided technical input alongside two main contractors, EQECAT for modelling and CGM consortium for developing the financing and operational strategy
• Work started in March 2006 and the Facility was incorporated in April 2007, with first policies incepting on 1 June 2007
5
Structure of CCRIF
• CCRIF is a Cayman-domiciled insurance company owned by a special purpose trust
• It is governed by a trust deed, within which the 5 directors must ensure that the CCRIF operates
• The board has representation from participants (via CARICOM nominee) and donors (via CDB nominee), and has two technical experts
• CCRIF’s operations are laid out in an Operations Manual and are executed by a number of service-provider companies (Facility Supervisor, Insurance Manager, Reinsurance Broker, Asset Manager, Communications/PR Advisor)
6
Organigram
7
Types of coverage
• CCRIF currently offers parametric policies for wind and earthquake
• Policies have a high per-event deductible (1 in 15-yr loss for hurricane, 1 in 20-yr for quake) and an annual coverage limit
• Pricing is calculated as a function of the pure risk (Average Annualized Loss) on each contract
• Coverage is designed to cover short term revenue shortfall (c.f. Business Interruption), NOT infrastructure, indirect social costs, etc
8
9
10
Risk Management
• CCRIF issued 30 annual policies to 16 CARICOM countries in 2008
• CCRIF initially raised capital to cover claims and operating costs from donors (c. US$50 million) and from its participants (c. US$22 million)
• Reinsurance is purchased to increase claims paying capacity, with CCRIF retaining the first US$12.5 million
11
12
Risk Metrics
• CCRIF uses dynamic financial analysis to forward-model its finances and guide risk transfer decisions
• For 2008, CCRIF purchased US$132.5 million in excess of loss reinsurance, whilst retaining US$12.5 million
• Claims paying capacity is greater than the modelled aggregate annual loss with a 1 in 10,000 chance of occurring
13
14
Financial Strategy
• Annual premium income is c. US$22 million at a multiple of 2.25 to AAL for each participant
• CCRIF plans to reduce the premium ratio by up to 33% over the coming 2-3 years
• Capital continues to build to a level such that premium pricing is minimised for an acceptable level of long-term survivability
15
Benefits
• Pooling of risk across wide geographical area provides excellent diversification
• Pricing based on technical risk avoids cross-subsidisation
• Parametric policies allow total objectivity and rapid payouts
• Pooling into single reinsurance transaction improves access and pricing and allows innovative structures
16
17
Limitations
• High deductible means that it only covers major catastrophe events in which national economies are severely impacted
• Basis risk means that events can occur which produce significant losses but no payout (and the opposite is possible)
• Concept of parametric is poorly understood, so clients expect their ‘insurance policy’ to cover everything
18
Development Plans
• Expand membership– to further diversify risk– to enable access to CCRIF for a broader range of
countries
• Provide new products– Rainfall/flood coverage – Electrical transmission/distribution cover– Parametric agricultural coverage for governments
• Improve current products by updating/revising cat modelling
19
Outreach
• CCRIF continues to engage its stakeholders through workshops, conference presentations and development/distribution of multi-media information packages
• CCRIF works closely with many Caribbean technical agencies and development agency partners in support of increased understanding and use of risk management for sustainable development
20
Conclusions
• CCRIF is the world’s first parametric risk pool and the first multi-national pool covering sovereign risk
• CCRIF has successfully implemented a low-cost insurance programme for governments which has maximised its attraction to participants, donors and risk transfer markets
• CCRIF works because– payouts are fast– premiums are low– the pool is mutually beneficial and transparently fair
21
Lessons for agri-insurance
• Parametric agricultural insurance will require lower return-period attachment points, so modelling and policy design will need to be higher resolution to achieve acceptably low basis risk
• CCRIF keeps operational costs low by dealing with governments directly and by being a ‘virtual’ organisation. This model cannot work in the agricultural sector without a ‘middle-man’ (govt. or private sector) to manage participants at the farmer/smallholder level
22