1. Ivan Zelenko Head of Derivatives and Structured Finance
WORLD BANK
Cat Bonds: towards efficient disaster risk sharing
OECD
International Network of the Financial Management of Large-Scale Catastrophes Bangkok Sep 2009
Ivan Zelenko Head of Derivatives and Structured Finance

2. The call for an enhanced risk taking capacity in catastrophe insurance
Natural catastrophes have increased in frequency and cost
Governments of emerging countries are highly aware of economic consequences and are looking for insurance solutions
Global reinsurance shows signs of under-capacity: concentration on peak risks, massive capital loss following mega events like Katrina
The resulting high level of premiums (in multiples of the expected loss) and their volatility induce barriers to entry and rationing

3. Cat bonds can bring in the risk taking capacity of global capital markets
Risk modeling and parametric insurance have allowed to convert disaster insurance into a new asset class
From the mid 90s, cat bonds have grown into a $13bn market, a small segment of the $50T total cap of global capital markets
They could grow to an estimated $ Bn within 10 years
The enlarged mutualisation should reduce the cost of insurance
The maturity of cat bonds (3 to 5 years) helps manage the volatility of premiums

4. Total Non-Life Bonds Outstanding, By Year (as of June 2009)
Cat bond markets have shown resilience throughout the financial crisis
Total Non-Life Bonds Outstanding, By Year (as of June 2009)
714
742
825
1,125
967
990
1,988
1,143
2,138
4,920
7,721
2,730
1,385
153
180
759
1,412
1,812
2,206
3,102
3,541
3,657
7,663
10,676
10,920
3,000
6,000
9,000
12,000
15,000
18,000
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Issued
Outstanding
Source: Goldman Sachs and Swiss Re

5. Cat Bonds have shown a sustained performance across most asset classes
Diversification power shown to investors in the midst of the crisis
Cumulative Performance from January 01, 2007 – June 01, 2009
20% 1%
-35%
Source: Goldman Sachs and Swiss Re

6. Catastrophe Bonds as a Public Finances Insurance Tool
The World Bank Treasury, in partnership with Mexico has been working with an initial group of countries on facilitating the access to cat bond markets to governments
The World Bank Treasury is developing an issuance program or “shelf”, which will be easily accessible to its member countries
The MultiCat Program will enable the sourcing of insurance coverage against low frequency – high severity perils such as earthquakes, floods and hurricanes
The first issue of a series of cat bonds to be issued under the MultiCat Program is currently in preparation