1. The Caribbean Catastrophe Risk Insurance Facility

2. Structure of the Facility Joseph M. Matalon Chairman, CGM Group

3. Outline Governance Structure Operating Structure Financial Strategy –DFA –Benefits of pooling –Capital growth and sustainability –Initial capitalisation

4. Facility Governance CCRI Facility Captive insurance Company BOARD OF DIRECTORS 1 WB Nominee 1 Donor Nominee 1 Nominee from Countries 2 Independent Insurance Experts CCRII Trust Trust owns the Captive Settlor World Bank Trust Deed Beneficiaries Participating countries

5. Facility Management Reserves Reinsurance/ART (Purchased in international financial market) Risk Transfer Payments Risk Transfer Receipts Growth A Captive Manager will be employed to perform ‘back-office’ functions of the Facility The Facility Supervisor will perform ‘front-office’ functions, including: Risk management and financial modelling Policy sales and collections Claims adjudication and settlement Reinsurance or ART is placed in international market through a Placement Broker Reserves managed by the World Bank (all interest compound to the reserve)

6. How will it be financed ? International donors will provide initial seed capital via a World Bank Trust Fund Income: from premiums and from return on invested seed capital and surpluses Expenditure: reinsurance/ART payments, Facility management costs and loss payouts when triggered Aiming for long-term survivability of Facility, so heavily reinsured initially

7. Financial Flows Reserves Reinsurance/ART (Purchased in international financial markets) Country 2 Country 3 Country 1 Country 4 Country 5 Country 6 Country 7 Risk Transfer Payments Risk Transfer Receipts Loss Payments Premium Initial donor contribution Growth

8. Reinsurance and ARTs Alternative Risk Transfer (ART) mechanisms such as Cat Bonds and Risk Swaps are being considered in conjunction with the World Bank Treasury Risk transfer will also be achieved through traditional reinsurance; while the catastrophe market is very ‘hard’ right now, the low level of hurricane activity this season may soften the market Pooling, good definition of risk and geographical diversification should lead to better pricing from reinsurers and good market for capital instruments The Dynamic Financial Analysis (DFA) model developed by the project team will enable the Facility Supervisor to structure risk transfer in the most cost-effective manner

9. Tangible benefits of pooling

10. Growth and sustainability The DFA allows forward modelling of the financial health of the Facility when subjected to catastrophe events Country premium rates will be as low as possible while retaining the ability of the Facility to grow its capital and to cover all losses As capital grows, coverage can be expanded and premium rate changes can be isolated from reinsurance market cycles

11. Initial capitalisation Establishment of the Facility would be impossible without substantial capitalisation provided by the Donor Community, which allows for flexibility in transfer and retention of risk This Donor commitment to the region will only be to the benefit of those countries who participate in the Facility Greater initial capitalisation translates into greater benefits to participating countries through reduced premium costs

12. What are the barriers ? Where relevant, individual countries need to make exceptions to existing legislation (which may debar the purchase of insurance from offshore insurance vehicles) Individual countries will need to make budgetary provisions for the initial deposit and annual premium payments – the Facility will operate most effectively with long term commitment by countries to participate Pooling and diversification will only assist in reducing cost if we get a substantial number of countries taking part

13. Summary The Facility is being structured so as to make the most efficient use of both Donor capital and participant premium payments The Governance structure will be transparent and will ensure that the Facility is operated in the best interest of all participants Significant financial benefits accrue to the region as a whole through the innovative mechanisms provided by the Facility