World Bank Group 1 Caribbean Catastrophe Risk Insurance Initiative A World Bank initiative at the Request of the CARICOM Heads

World Bank Group 2 Natural disasters may become more severe and more frequent

World Bank Group 3 CARICOM Countries n High exposure to a variety of adverse natural events n Limited economic resilience to disasters because of small size and limited borrowing capacity n Dependence on financing from international donors to finance post-disaster needs n Limited access to insurance and reinsurance markets

World Bank Group 4 The liquidity Gap following a disaster n The primary objective of this facility is to provide immediate liquidity to the affected country

World Bank Group 5 Financial Flows Facility (Pools and retains some of the risks) Reinsurance & Capital Markets Country 2 Country 3 Country 1 Country 4 Country 5 Country 6 Country 7 Reinsurance Premium Reinsurance Payout Payout Premium Initial donor contribution

World Bank Group 6 CCRII: An Insurance Instrument n A captive (proprietary insurance vehicle), owned by the members of the pool and international donors, is created to act as the primary insurer n Pooling of risk among the CARICOM states to create a diversified portfolio and benefit from economies of scale n Risk capital provided by member countries and international donors would help reduce reliance on the international reinsurance market n Payouts would be based on calculated indices (e.g., wind speed, ground shaking, etc.) to reduce transaction costs and allow for immediate payout

World Bank Group 7 Hurricane Tracks and Catastrophe Risk Modeling For illustrative purpose only

World Bank Group 8 Parametric Insurance n Payouts triggered by a calculated index (e.g., wind speed, ground shaking, etc.)

World Bank Group 9 Reducing the gap between commercial premium and pure premium Insurance PremiumBenefits of the Facility = Pure Premium Better understanding of risk exposure by the countries + Operating costs Use of parametric instrument Economies of scale within the Facility + Catastrophe load Seed capital provided by donors reduces cost of capital More diversified portfolio reduces reinsurance costs + Return on equity Public entity

World Bank Group 10 The insurance premium can be more than 4 times higher than the pure premium For illustrative purpose only

World Bank Group 11 Next Steps and Timeframe n April 28, 2006 t Regional Introductory Workshop t Tailoring of coverage for each country t Discussion on operational and legal features of the Facility n Summer 2006 t Commitments of member countries t Pledges from donors t Selection of the Facility manager t Reinsurance placement n Tentative start date: January 2007 n Extension to other risks/products/regions

World Bank Group 12 Thank you n Questions?