1. Revive, Rebuild, Recover: Creating a Sustainable NJ Coastline Megan Linkin, Ph.D. Natural Hazards Expert, Swiss Re

2. M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 2 Table of Contents / Agenda New Jersey by the Numbers Coastal Hazards Facing New Jersey Bringing in the Re/Insurance Industry Concluding Thoughts

3. M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University New Jersey by the Numbers 3

4. M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University Total population: 8.8 million people (2010 Census) Population in coastal counties: 3 million people (34% of state population) The leisure, hospitality and recreation sector of the economy generated $43.4 billion of the 2010 gross state product, equating to 8.9% (NJ Bureau of Labor Market Information 2012). – Most tourism is generated by the Jersey Shore The Barnegat Bay generates $4 billion in annual economic activity, $2.3 billion in ecosystem services and $2 billion in annual wages (APP 2012). Economic sensitivity due to weather variability is 8 – 10% of GSP (Lazo et al. 2011). 4 New Jersey Facts and Figures Source: Lazo et al. (2011)

5. M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University Severe damage to infrastructure, mass transit and the highway system On average, 30 – 40 feet of beach lost along the coast. (Associated Press 2012) 72,000 buildings in New Jersey impacted by the storm (FEMA 2012) – 500 structures destroyed – 5,000 structures suffered major damage – 24,000 structures suffered minor damage Estimated $29.4 billion in physical economic damage according to Governor Chris Christie's office – Projected to rise in the coming months as full impact on economy is revealed (tourism, real estate prices) Insured losses in New Jersey estimated around $4 billion (PCS) Total NFIP losses are estimated at approximately $12 billion (Business Insurance 2012) 5 The Aftermath of Superstorm Sandy Ortley Beach, NJ – November 17, 2012 Source: Ocean County Police Blotter

6. M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 6 Sandy's Place in History Economic Losses from Coastal Storms in New Jersey Source: NJ.com Estimated economic losses from Sandy are 5 - 6 times the second largest event, the Ash Wednesday 1962 nor'easter

7. M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University Coastal Hazards Facing New Jersey 7

8. M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University Sandy's storm tide ranged from 8 – 14.3 feet in the NY/NJ metro area – Sea level at the Battery has increased 10 – 15 inches in the last 100 years – This sea level rise, thought to be half natural and half anthropogenic, exacerbated Sandy's storm surge A category 3 hurricane striking the NJ coast TODAY at high tide would bring a storm tide between 10 and 25 feet With another 1 – 2 feet of anthropogenic sea level rise projected to occur by 2050, another storm less intense than Sandy will be able to generate higher storm tides by mid-century 8 Coastal Hazards Storm Surge Source: NOAA/NHC

9. M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University Sandy followed the Gulf Stream north along the southeast and Mid-Atlantic United States Research into the behavior of tropical cyclones in a warmed climate: – Overall decrease in tropical cyclone frequency – Increase in the frequency of the most severe (category 4 and 5) events 9 Coastal Hazards Wind Source: NOAA/GFDL Source: NOAA/CPC

10. M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University Bringing in the Re/Insurance Industry 10

11. M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University On a typical day, Toms River, NJ, 911 dispatch received 250 calls. – In the 24 hours after Hurricane Sandy, more than 1,300 calls were logged NJ Transit estimates that between a quarter to a third of rolling stock was damaged by Sandy. 7 million people affected by power losses, or 80% of the state's population. Approximately 333,922 cubic yards of Sandy-related debris was removed from only six towns in Monmouth and Ocean Counties (Asbury Park, Beach Haven, Eatontown, Howell, Long Branch and Middletown). 11 The Role of Re/Insurance Closing the Financial Gap – Post-event statistics Source: Personal

12. M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University The National Flood Insurance Program (NFIP) has paid out $33.8 billion (real USD) in losses since 1978. Five multi-billion dollar losses have occurred since 2001, leaving the NFIP in $18 billion of debt. – The NFIP is without the borrowing capacity to meet potential Sandy-related losses Congressional renewal of the NFIP in mid-2012 came with a mandate to investigate mechanisms to bring in the private insurance market. Governor Andrew Cuomo created a task force post-event to investigate the potential insurance solutions to address questions which have arisen after Sandy. – Traditional re/insurance solutions are possible and viable, albeit with a complicated claims process – Public-private partnerships : Risk transfer solutions which provide rapid financing to a government client in the wake of a natural disaster 12 The Role of Re/Insurance Enhancing Flood Insurance

13. M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 13 How do Parametric solutions work: MultiCat Mexico hurricane example Trigger: Hurricane of 920 mb or lower through box = payment

14. M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University TopicTraditional InsuranceParametric Solutions Use of ProceedsIntended to cover loss sustained Used at buyers discretion Speed of PaymentSubject to loss adjustment (can be slow) Rapid: 2 – 6 weeks Loss Adjustment / Administrative Process Yes - buyer may need own claims adjusters No – little claims administration needed TransparencyLoss settlement is complex to explain Parametric triggers easier to explain Pricing FlexibilityLimited modificationsStructure can be adjusted to price Changes in ExposureAnnual adjustmentsNo adjustment needed 14 Traditional vs. Parametric – Benefits to buyer

15. M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 15 How others have used parametric solutions CountryClientCoverage SizeUse of FundsForm Government of Mexico USD 290 million (Hurricane and Earthquake) Cover emergency expenses following disasters Cat Bond (ILS) Caribbean Catastrophe Risk Insurance Facility USD 111 million (Hurricane and Earthquake) Provide financial liquidity for the government following disasters Parametric reinsurance and derivative State of AlabamaTransaction size not disclosed (Hurricane) Pay for increased insurance costs following hurricanes Insurance University of Texas Medical Branch USD 50 million (Hurricane) Covering losses from hurricanes to soften impact to University system Insurance

16. M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University Concluding Thoughts 16

17. M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 17 Conclusions Good news…  Sandy presents the State with an opportunity to fortify the coast and its communities by implementing cohesive dune systems and stricter building codes  Bad news…  Coastal areas are highly exposed to storm surge and damaging winds and anthropogenic climate change will exacerbate storm surge via sea level rise Good news…  Risk management strategies and product offerings from the private re/insurance industry can help the state of New Jersey and its municipalities both maintain the insurability of the coastal region and financially prepare for significant weather events. Rebuilding a resilient coast will be a joint effort between the government, the private sector and academia!

18. M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 18

19. M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 19 "The Jersey Shore, for those of us born and raised here, is more than a summertime destination. It is in our bones and blood. It defines our state and it defines us." -- Home News Tribune, 11/11/2012 “[The Jersey Shore] is our most valuable resource, natural and otherwise, on levels that go so much deeper than money. The ocean is soothing when not raging. The shore breezes cool us, when not uprooting us. It is our playground, when not leveled. It is our claim to fame, in good times, and, now, in very bad. Here's another claim: We took Mother Nature's best shot, and we're still standing." -- The Star Ledger, 11/2/2012 "Cause down the shore, everything's alright." -- Bruce Springsteen, "Jersey Girl"

20. Thank you

21. M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 21 Case study Mexico: MultiCat - Funding for immediate relief efforts after disasters Solution features Insured perils: Earthquake and hurricane Payments to be used for immediate emergency relief after a disaster Parametric catastrophe bond: USD 290 million Trigger type: Index – Earthquake: physical trigger (quake magnitude) – Hurricane: physical trigger (barometric pressure) Time horizon: October 2009 – October 2012 1st cat bond launched through the World Bank’s new MultiCat facility and second cat bond for Mexico Involved parties Insured: Fund for Natural Disasters (FONDEN) of Mexico Arranger: World Bank Treasury Swiss Re: Co-lead manager and joint bookrunner Swiss Re Global Partnerships | February 2012

22. M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 22 Case study Caribbean: Caribbean Catastrophe Risk Insurance Facility (CCRIF) Solution features The CCRIF offers parametric hurricane and earthquake insurance policies to 16 CARICOM governments The policies provide immediate liquidity to participating governments when affected by events with a probability of 1 in 15 years or over Member governments choose how much coverage they need up to an aggregate limit of USD 100 million The mechanism will be triggered by the intensity of the event (modelled loss triggers) The facility responded to events and made payments: – Dominica & St. Lucia after earthquake (2007) – Turks & Caicos after Hurricane Ike (2008) – Haiti, Barbados, St. Lucia, Anguilla and St. Vincent (2010) Involved parties Reinsurers: Swiss Re and other overseas reinsurers Reinsurance program placed by Aon Benfield Ltd. Derivative placed by World Bank Treasury

23. M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 23 Case study United States: Alabama – First parametric transaction for a government in an industrialized country Solution features Insured peril: Hurricane Payments to offset economic costs of hurricanes Parametric insurance: Transaction size not disclosed Trigger type: Disaster occurring within a defined box along coast (“Swiss Re Parametric CAT™”) – Trigger based on the maximum sustained wind speed of hurricane as the center passes through the box Time horizon: July 2010 – July 2013 1st parametric catastrophe risk transfer for a government in an industrialized country Involved parties Insured: State Insurance Fund of Alabama Swiss Re: Lead structurer and sole underwriter

24. M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 24 Case study United States: University of Texas – Custom multi-year structured cover for public university Solution features Insured peril: Hurricane Multi-year Aggregate Cover: USD 50m Covering indemnified losses from hurricane to soften impact to broader University system – 3 year coverage with mandatory reinstatement – No claims bonus Time horizon: April 2012– March 2015 Customized multi-year structured risk transfer for major public university Involved parties Insured: University of Texas Medical Branch Swiss Re: Lead structurer and underwriter Broker: Beecher Carlson

25. M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University Legal notice ©2012 Swiss Re. All rights reserved. You are not permitted to create any modifications or derivatives of this presentation or to use it for commercial or other public purposes without the prior written permission of Swiss Re. Although all the information used was taken from reliable sources, Swiss Re does not accept any responsibility for the accuracy or comprehensiveness of the details given. All liability for the accuracy and completeness thereof or for any damage resulting from the use of the information contained in this presentation is expressly excluded. Under no circumstances shall Swiss Re or its Group companies be liable for any financial and/or consequential loss relating to this presentation. 25