World Bank Group 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

World Bank Group

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

World Bank Group 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

World Bank Group Country-specific risk modeling Portfolio of Risk Exposures for Wind & Storm Surge Historical Wind Track Data Vulnerability Wind Hazard Damage and Financial Loss Storm Surge Hazard 54321TS

World Bank Group 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 ReConcentric Ltd.

World Bank Group To parametric index insurance

World Bank Group Hurricane path and calculated wind speeds * 2 Capital (130 MPH) 1 Port and manufacturing ( 125 MPH) * 3 Tourism (95 MPH) * 4 Tourism ( 145 MPH) 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

World Bank Group Designing Hurricane Loss Index Index calculation locations and weights for Jamaica Loss deficit curve for Jamaica

World Bank Group Catastrophe Insurance Pool

World Bank Group CCRIF risk financing capacity CCRIF Portfolio - Loss Exceedance Curve The CCRIF can sustain a 1-in-1000 year adverse event

World Bank Group Hurricane Dean: The first test for the CCRIF

World Bank Group CCRIF - Next steps Product refinement Lowering the minimum hurricane attachment point for a 20 year RP to a year RP New coverage under investigation Flood coverage Agricultural parametric insurance

World Bank Group 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)