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World Bank GroupWorld Bank GroupCaribbean Catastrophe Risk Insurance Initiative

A World Bank initiative at the Request of the CARICOM Heads

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World Bank GroupWorld Bank Group

Natural disasters may become more severe and more frequent

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World Bank GroupWorld Bank GroupCARICOM Countries

High exposure to a variety of adverse natural events

Limited economic resilience to disasters because of small size and limited borrowing capacity

Dependence on financing from international donors to finance post-disaster needs

Limited access to insurance and reinsurance markets

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World Bank GroupWorld Bank GroupThe liquidity Gap following a disaster

The primary objective of this facility is to provide immediate liquidity to the affected country

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M o n t h s a f t e r a d i s a s t e r

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World Bank GroupWorld Bank GroupFinancial 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

ReinsurancePremium

ReinsurancePayout

Payout

Premium

Initial donor contribution

Initial donor contribution

Initial donor contribution

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World Bank GroupWorld Bank GroupCCRII: An Insurance Instrument

A captive (proprietary insurance vehicle), owned by the members of the pool and international donors, is created to act as the primary insurer

Pooling of risk among the CARICOM states to create a diversified portfolio and benefit from economies of scale

Risk capital provided by member countries and international donors would help reduce reliance on the international reinsurance market

Payouts would be based on calculated indices (e.g., wind speed, ground shaking, etc.) to reduce transaction costs and allow for immediate payout

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World Bank GroupWorld Bank GroupHurricane Tracks and Catastrophe Risk Modeling

For illustrative purpose only

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World Bank GroupWorld Bank GroupParametric Insurance

Payouts triggered by a calculated index (e.g., wind speed, ground shaking, etc.)

Hypothetical insurance payout

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Windspeed (mph)

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S$ m

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World Bank GroupWorld Bank Group

Reducing the gap between commercial premium and pure premium

Insurance Premium Benefits 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

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World Bank GroupWorld Bank GroupThe insurance premium can be more than 4 times higher than the pure premium

For illustrative purpose only

32%

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10%

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Pure premium

Commercial premium

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World Bank GroupWorld Bank GroupNext Steps and Timeframe

April 28, 2006 Regional Introductory Workshop Tailoring of coverage for each country Discussion on operational and legal features of the Facility

Summer 2006 Commitments of member countries Pledges from donors Selection of the Facility manager Reinsurance placement

Tentative start date: January 2007 Extension to other risks/products/regions

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World Bank GroupWorld Bank GroupThank you

Questions?