Photo©Stanhope by Hufton + Crow Reinsurance Market perspective on Public- Private Partnerships on Catastrophe Risk Financing in Developing Countries FPD Forum 2010 James Vickers Chairman Willis Re International & Specialty

2 Contents 1)Overview of the Global Catastrophe Risk Market 2)Importance of Risk Diversification 3)Creating PPPs in developing countries 4)Examples of success 5)Conclusions

3 Top International Insurance Groups RankGroupCountry2008 NWP 1AXAFrance124.6bn 2 Allianz Germany97.4bn 3AIG US96.6bn 4GeneraliItaly95.1bn 5AvivaUK67.2bn 6INGNetherlands64.5bn 7 Munich ReGermany54.8bn 8ZurichJapan51.9bn 9CNPFrance41.6bn

4 Top Reinsurance Groups RankGroupCountry2008 R/I NWP 1Munich ReGermany$30.4bn 2Swiss ReSwitzerland$23.7bn 3 Berkshire HathawayUS $11.4bn 4 Hannover ReGermany $10.7bn 5LloydsUK $8.6bn 6SCOR SE France $8.5bn 7 Transatlantic Holdings US $4.1bn 8 Partner ReBermuda $4.0bn 9 Ace Tempest ReBermuda $3.9bn 10Everest ReBermuda $3.5bn

5 Reinsurance Industry Combined Ratios % Sources i) Insurance Information Institute (estimate-2008), ii) Reinsurance Association of America, iii) Company data (8 European companies: 18 Bermudian companies) 2008 Annual Results Presentation

6 Insurer versus Reinsurer Event Loss Estimates Insurance Estimate (Katrina & New Orleans Flooding) Estimated % Ceded to Reinsurance Reinsurance Loss $20bn20%$4bn $30bn30%$9bn $40bn37.50%$15bn $50bn45%$22.5bn $60bn47.50%$28.5bn

7 Natural Catastrophe Overview Growing urban populations and asset values driving demand for natural catastrophe cover Traditional Natural Catastrophe XL market currently highly concentrated into 5 main areas: US Windstorm California Earthquake Northern Europe Windstorm Japan Earthquake Japan Typhoon Global Nat Cat X/L premiums USD15b versus any one loss potential of US$50bn (Treaty only)

8 Catastrophe Bond Market Volumes ($ in billions) Capacity Issued and Outstanding by Year

9 Catastrophe Bond Market ON-RISK CAPACITY BY SPONSOR TYPE Total: $12.3 billion Sponsors and Forms of Cover

10 Private Reinsurance companies heavily focused on achieving improved balance of premium to liability through active management of aggregate limits, improved diversification and risk transfer to third parties. Private reinsurers commercially interested to support any diversifying Natural Catastrophe schemes. Developing countries face the issue of scale when accessing the global reinsurance market. Bundling Natural Catastrophe risks in developing countries into efficient blocks optimises utilisation of Private Global Natural Catastrophe market. Natural Catastrophe The Risk Financing Challenge

11 PPP Natural Catastrophe Schemes – Key Points 1.What is the purpose of the scheme and the PPP? 2.Role of Third Parties e.g. World Bank, OECD, Global Earthquake Model, World Meteorological Organisation, etc 3.Political capacity of government provide administrative function with clarity of purpose and legislative authority 4.Capability of Government to support at local levels 5.Capability of Government to support risk assessment, risk mitigation and management 6.How can private companies be involved e.g. insurance companies, reinsurance companies, catastrophe modellers, brokers/advisers, software providers

12 Creating PPP Schemes in developing countries With many different interests to reconcile rigorous process has proved to be the key to successful implementation of PPP Natural Catastrophe Schemes Project Management Risk Assessment Structuring/ Pricing Risk Mitigation Scheme Goal Legal Structure Governance Management Infrastructure Implementation Complex Process

13 Examples Successful implementation: Turkish Catastrophe Insurance Pool Algerian Catastrophe Insurance Pool Caribbean Catastrophe Risk Insurance Facility NB. various examples in developed countries some with experience in excess of 50 years Undergoing study/implementation: Romanian PAID SECE CRIF China Tunisia Morocco Jordan Above examples range from regional multi peril schemes (e.g. SECE CRIF) to single country schemes but all share same basic concept of providing catastrophe cover to reduce post event financial burden on individuals, SMEs and Governments

14 Examples TCIP Pool formed in 2001 following Izmir EQ in 1999 managed by a private third party Provides EQ cover for dwelling risks up to USD100,000 any one policy Pool currently has USD500m reserves, covers 3.4 million policies and buys USD 2Bn Cat X/L Romania PAID PAID (owned by private insurers) set up to provide EQ and flood cover for dwelling risks for Limits of Euro 10,000 or Euro 20,000 Purchase of cover is compulsory under Romanian Law Initial financial and catastrophe modelling completed and assuming 100% take up PAID requires in excess USD4Bn Cat X/L Implementation planned 2010 SECE CRIF Catastrophe Reinsurance Pool owned by SECE Countries to increase number of homes and SMEs covered for EQ and flood CRIF designed to give support to private insurance companies to promote sales on a non compulsory basis Diversification benefit of CRIF will allow enhanced price efficiency and greater stability than stand alone single country schemes

15 Conclusions Developing PPP Nat Cat Schemes is complex and time consuming but the Global Reinsurance Market is supportive for both commercial and social reasons Private Reinsurance Companies do not have the convening power and political influence to implement Natural Catastrophe schemes by themselves – need to build partnerships with the public sector Good implementation track record over past 10 years clearly demonstrates PPPs can achieve reasonable outcomes for all parties