Caribbean Catastrophe Risk Insurance Initiative

1. Caribbean Catastrophe Risk Insurance Initiative Olivier Mahul Program Manager, Insurance for the Poor, World Bank Coordinator, 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 Services December 5-7, 2007, WMO Headquarters, Geneva Switzerland

3. 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 delays The 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

4. 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

5. Portfolio of Risk Exposures Portfolio of Risk Exposures for Wind & Storm Surge for Wind & Storm Surge Historical Wind Track Data Historical Wind Track Data Wind Hazard Wind Hazard Storm Surge Hazard Storm Surge Hazard Vulnerability Vulnerability Damage and Financial Loss Damage and Financial Loss Country-specific risk modeling 5 4 3 2 1 TS

6. “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 From parametric insurance… Parametric Re Concentric Ltd.

7. To parametric index insurance

8. Hurricane path and calculated wind speeds • 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 • 1 Port and manufacturing • ( 125 MPH) * 3 Tourism (95 MPH) *2 Capital (130 MPH) *4 Tourism ( 145 MPH)

9. Designing Hurricane Loss Index Loss deficit curve for Jamaica Index calculation locations and weights for Jamaica

10. Catastrophe Insurance Pool

11. CCRIF risk financing capacity 2007-08 CCRIF Portfolio - Loss Exceedance Curve The CCRIF can sustain a 1-in-1000 year adverse event

12. Hurricane Dean: The first test for the CCRIF

13. CCRIF - Next steps • Product refinement • Lowering the minimum hurricane attachment point for a 20 year RP to a 10-15 year RP • New coverage under investigation • Flood coverage • Agricultural parametric insurance

14. 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)